I live in VA. Last year, I brielfy worked in a remote position for a NYC company. I paid NY state taxes (according to my W-2). Why when I'm filing the NY state return, even though I have said I am a nonresident, it is including all of our income? I shouldn't be paying NY state income tax on income that was earned in VA! Why is it doing this?
It may look like NY is taxing all your income, but it is not. NY calculates what your New York tax would have been if you earned everything in NY, but then prorate that tax based on how much of your income was earned in NY.
As a nonresident, you only pay tax on New York source income, which includes earnings from work performed in New York State, and income from real property located in the state.
Okay, I understand your reply. However, is the NY tax rate based on my federal AGI? Because I literally made $7000 sourced from NY. My tax due is roughly $400. This doesn't seem accurate.
If you as a non-resident of NY never actually (physically) worked within New York State, not even for a single day, then your income from that work is not taxable by New York State. As @MayaD stated, NY-source income includes earnings from work performed in New York State, and income from real property located in the state.
If NY taxes were mistakenly withheld from your pay, then you should file a non-resident NY return. On that return show the NY withholdings but allocate zero income to NY. That should result in a full refund to you of the incorrect NY withholdings.