How to handle this two-state return situation

[b87lar]

In 2021, I have worked for a company headquartered in NY, remotely from UT (100% of the year). Unfortunately, the company has withheld NY state taxes for the first 10 months of the year because my physical office location in their records was still in NY. I had this corrected for the last two months so they withheld UT taxes.
How should I proceed with state returns - which state should I start with and should I expect to pay only UT taxes in this situation. If so, how do I use TT to get the NY taxes withheld returned? 

[ErnieS0 · Accepted solution]

Prepare your nonresident New York return. Then prepare your Utah resident return. Utah allows a credit for income taxed by NY.

If you prepare the NY return first, TurboTax will automatically carry the NY income and tax over to UT.

New York follows the "convenience of the employer rule", meaning you may still be liable for NY tax as a remote employee if your physical office location is NY, which was your situation.

You may not get a NY refund (it depends on much much tax was withheld). However NY has one of the highest US state tax rates so you will probably not owe any UT tax.

[b87lar]

Thank you very much for your response! Two follow up questions: 

(1) Should I split the year according to the event of when my physical office location has been officially move to UT (i.e., 10 months NY, following 2 months UT) when filing the NY tax?

(2) 2022 and on, with my employer not withholding any NY tax (and my physical office location in UT), will I be still liable for any employment-related NY taxes?

[ErnieS0]

I suggest using the split that's listed on your W-2. That will match what is listed on your W-2.

If your office location was a mistake from the beginning then you could report $0 NY income. You'd probably be audited and I would not recommend this unless you had a letter from your company outlining a mistake or proof that you had a bona fide office for the months covered by NY withholding.

New York is aggressive in taxing telecommuters and has rules as to what constitutes a bona fide office. UT has a flat tax rate of 4.95% and your NY tax is probably 1%-1.5% higher, depending on your income, so that's the difference.

You will not owe NY tax next year if your company changed your work location and began withholding UT tax. NY will not bother you because your company will not report anything to NY.