Hello - I started working remotely for a NY institution last year. Never once stepped foot in NYS (live in Tennessee) and it's at the convenience of my employer. Yet when I fill out a non-resident return, I'm taxed on my income from the NY source.
That seems incorrect according to 132.18(a) and numerous discussions that I've read here. How do I get Turbotax to respond to my situation correctly? (Have ticked off every non-resident box in IT203, but maybe there is something more).
from sources listed by @TomD8
“A nonresident who works in another State but who performs no work in New York is not subject to New York State tax liability no matter for whose convenience or necessity he performs the work.”
Hayes v. State Tax Comm, 61 A.D.2d 62, 64 (N.Y. App. Div. 1978)
Hayes v. State Tax Comm, 61 A.D.2d 62 | Casetext Search + Citator
And the definition of NY-source income of a non-resident from NY Tax Bulletin IT-615 refers only to income from work carried out in New York.
https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/pit/ny_source_income_nonresident.htm
These cases and NY publications appear to indicate I do not have "NY-source income", because that term only applies to work done in NYS, where I have never been.
A fully remote employee who never spends a day in New York does not have NY source income. To be subject to NY tax, you have to have worked “within” and “without” of New York.
See: New York’s Convenience Rule: Under the COVID Microscope
See That said, New York is very aggressive about taxing remote employees and there have been cases where the facts appear to favor the taxpayer, but they have lost.
You can file a nonresident NY return and get back all your withholding. Change your NY wages to $0.
If your employer agrees that you are working remotely for their convenience, speak to them about stopping NY withholding and classifying you are a Tennessee employee.
You will probably have to file Form IT-2104-E Certificate of Exemption from Withholding.
Appreciate your guidance, @ErnieS0.
My employer stopped withholding NY tax, after the first month, when I clarified my situation.
IT-2014-E says one of the criteria to use it is that I'm: "under age 18, or over age 65, or a full‑time student under age 25; and..." As I'm not very young or retired, it seems I cannot use that form.
If your employer stopped withholding NY tax then you would not have to file a withholding certificate.
The fact that your employer stopped withholding NY tax certainly speaks in your favor if your choose to get all your withholding back.
People will often go along with NY even if they know they should not pay NY just to avoid an audit. If you lived in a state with an income tax, your home state would give you a credit so there's not much difference in what you pay (though NY is almost always higher, so you are overpaying).
However, TN has no income tax so you will be paying a lot of unnecessary tax if you do not claim your withholding.
It's an IT-2104.1 form. You can provide it to your employer, but its not required with 0% work in NYS under the employer Withholding Guidelines.
Glad your employer made this easier for you on a going forward basis.
Kudos to @ErnieS0 for providing helpful advice on how to get through TurboTax - I would have struggled, given up, and paper filed ha-ha.
The point here is that, if using Turbotax to prepare the non-resident return, you have to tell Turbotax whether your income is NY-source, and how much. You can't let Turbotax assume. In your case, none of your income is NY source.
I'm not specifically familiar with the NY software, But, in other cases, the work around, to get TT to treat the income as not taxable by the Non Resident (NR) state, has been to change the box 16 amount to 0 at the W-2 screen.
I can force box 16 "State wages" on the W2 to zero as @Hal_Al suggests (though the form from my employer lists a few months of salary). Such a move seems like it would raise questions at IRS, but what do I know. Logically, I was hoping that IT203B, which would take the fact I have zero in-state days would let TT know I have no state income, but it doesn't seem to be recognizing that.
That's just a workaround to get TT to allocate the income on the NY forms. What you enter is not sent to the IRS or the NY Dept of Taxation and Finance. But, yes the Dept of Taxation and Finance may question it, because the copy of your W-2, they got from your employer says you have NYS income. You may want to mail your state return with an explanation statement attached.
@Aminy --
The workaround isn't necessary. As you go through the income section of the NY program, you'll come to a page titled "New York Income Allocation." As you proceed, you'll be given the choice of allocating to NY the correct portion of your income (zero in your case) either by number of days you worked in NY, or by the percentage of your W2 income earned in New York.
Big "thank you" to @kristinelbly @TomD8 @Opus 17 and others for their knowledgeable and detailed replies on this. I had to delete and redo my state return, but eventually I found the place where I could input my time in NY as a percentage, and put that at 0, which cleared everything up.
I also pay into an NY 414(h) plan. This seems like it may be the exception, in that it's taxable no matter where I live. Does anyone have experience with this?
Assuming you're covered by the 414(h) plan, it's legitimate for you to pay into it.
it appears that 414H contributions are exempt from federal tax, but subject to New York State tax. The amount should have been excluded from your box one taxable wages. If you look at your federal return, I don’t think you will see an add back. But they may be taxable in New York State, even if your wages are not taxable under the convenience of the employer rule.
https://www.osc.state.ny.us/retirement/publications/1530/contributing-toward-your-retirement
Thanks, @Opus 17 . I had read there were "some" exceptions to this being NY taxable, but wasn't sure if working remotely was one of them.
@Aminy they are an IT-203 addition modification that gets added back and taxed by NYS. Its for a different purpose than wages. NYS taxes your contributions, but any subsequent payments from the plan, are tax-free to NYS residents. It in essence turns the NYS/NYC public retirement plan, into a Roth type system, under the tax law.
So if you worked long enough for the agency, you could retire in NY and save taxes. About the only time moving into NY is going to save you money.
A problem has cropped up when I attempt to e-file:
"Allocation worksheet for PY/NR Wages Salary Etc col D New York wages were reported on federal form w2 but no wage income has been allocated to New York this will cause the efiled return to be rejected by New York state."
As we discussed earlier the solution was to say I was in NY 0% of the time (which is true) and hence I have no NY source of income, but now this has cropped up - appreciate comments from the @kristinelbly @TomD8 @ErnieS0 @Opus 17 braintrust:)
One potential solution is to manually change W2 box 16 "state wages" to be zero? (seems TT won't let me edit this value, so maybe impossible)
New York will not let you e-file a return with $0 wage income. You'll have to mail in your return. Change W-2 Box 16 will not allow you to e-file.
Thanks, @ErnieS0 . Do I also need to set "New York Wages" on the income allocation sheet to zero? (on that same row, I note that I "allocate by effort" 0%).
If I mail in a form saying my box 16 state income is $0 and my employer filed some other number, will NY be smart and see that my effort is 0% or am I likely going to be audited and explain it then?
Payroll's amazing response on this issue, in summary:
"Yes you do work in NY, we don't care where you say you are, and we'll fill out box 16 for 100% and any consequences of us doing that are your problem." Of course, I've never stepped foot in NY.
Do I need a lawyer? Is there some firm that would take this case from a middle class worker?
Try submitting NY Form 2104-1 to your employer, declaring that you are a non-resident of NY and that you expect that 0% of your services will be performed within New York State. Here's a link to the form:
https://www.tax.ny.gov/pdf/current_forms/it/it2104_1_fill_in.pdf
The obvious purpose of this form is to guide employers to withhold (or not withhold) according to New York law.
Payroll's amazing response on this issue, in summary:
"Yes you do work in NY, we don't care where you say you are, and we'll fill out box 16 for 100% and any consequences of us doing that are your problem." Of course, I've never stepped foot in NY.
This is not an uncommon situation. The NY tax people put pressure on employers to withhold NY tax and the easy way for the employer is just do it and let the employee deal with the consequences.
I suggest you file for a refund, mail your return, attach an explanation statement. If you don't get the refund, file your PA return claiming a credit for the tax paid to NY.
It is what it is.
I’m not sure about attaching a statement to the NY return. However, the good news is that the couple of times I have had to call the NY state income tax department, they have been easy to reach, professional and knowledgeable.
Thank you all! Seems like paper filing is the only way. (with or without a cover letter that says I'm 100% remote)
I'm concerned NY revenue will then say, "Get your employer to correct the w2, if you were truly never here". Of course my employer flatly refuses to do that. Then I'm been a rock and a hard place.
Hi @ErnieS0 and for anyone else facing a similar situation....
Thank you for the advice on how to try to get Turbo tax to efile with zero (0) allocated NY source income. I actually did get my employer to issue a corrected w2 that lists $0 for state wages.
However, even with that w2 set to $0 state wages, and setting NY income to $0 in the allocation worksheet, TT says NY will automatically reject it a $ owed 0 NY return. So even when all signs point to the correct answer (no NY tax owed) I have to paper file. Who knows what hell awaits after that.