fulltime remote work for NY - shouldn't be paying state tax, but turbotax....

[Aminy]

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).

@kristinelbly 

[Aminy]

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.

[ErnieS0]

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.

1. On New York Income Allocation, say No to Were all of your wages and/or your self-employment income earned in New York State?
2. Edit Your W-2 on Your Form W-2 Summary
3. Choose Allocate by Percentage on Allocate Wages to New York and enter 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.

[Aminy]

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.

[ErnieS0]

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.

[kristinelbly]

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. 

[Opus 17]

@Aminy 

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. 

[Hal_Al]

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. 

[Aminy]

 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.

[Hal_Al]

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. 

[TomD8]

@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.  

[Aminy]

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?

[TomD8]

Assuming you're covered by the 414(h) plan, it's legitimate for you to pay into it.

[Opus 17]

@Aminy 

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

[Aminy]

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.