I work for a NY company, remotely from NC. I spent 1 day in 2017 on site, but my W-2 has full salary in the state earnings boxes for both NC and NY. How can I allocate?

[monelise]

I work for a NY company remotely from NC. I worked 1 day on site in 2017, and signed a payroll form to that effect.  They used it to calculate how much NY tax for 1 day of wages to deduct. I had NC state taxes deducted all year.  When the 2017 W-2 came in, my full salary is showing in BOTH the NC earnings box AND the NY earnings box. I am filing joint with my spouse who lived/worked only in NC.  My employer insists this is how they prorate - they prorate the tax to be deducted only, and not the earnings. Is there any way to allocate only my 1 day of wage while working in NY to NY without getting a corrected W-2?  (which my employer will not do).

[DanielV01 · Accepted solution]

Your employer has reported this correctly.  New York has a very aggressive telecommuting law that considers you to be a nonresident worker in their state if the company for whom you are telecommuting is located in their state.  Their legal justification for doing so is called the convenience of the employer test.  Take, for example the following excerpt from this New York State memo regarding telecommuting taxation (click on link for full memo in pdf format):

“If a nonresident employee . . . performs services for his employer both within and without New York State, his income derived from New York State sources includes that proportion of his total compensation for services rendered as an employee which the total number of working days employed within New York State bears to the total number of working days employed both within and without New York State… . However, any allowance claimed for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of his employer. [The convenience of the employer test.] In making the allocation provided for in this section, no account is taken of nonworking days, including Saturdays, Sundays, holidays, days of absence because of illness or personal injury, vacation, or leave with or without pay.”  

What that means for a telecommuter is:  the job he/she is doing for the company could be performed at the company’s place of business inside of the state.  Since working at home outside of NYS is a convenience for you and the employer, but not a necessity, NY has the right to tax your income. Thus, you will need to file a nonresident return for NY (even though you only worked physically one day there).  If you are filing a resident return for the state where you live, you will be given a credit for the amount of tax you must pay on this telecommuting income to the other state.

Because you are married, NY gives you the option to file either joint (your wife's income is exempted from NY) or separately.  If you choose to file a NY return Married Filing Separately, you will need to use one of the desktop versions of TurboTax to do this.

[lalisiecki]

I did not work any days at all in NY.  Just to clarify because i do not have a separate office that was designated by my employer (and I work out of my house) they can take the NY income tax?

[SteamTrain]

IF you telecommute to a job in NY....and not form an actual office site in your home state  (not your home)...then the NY taxes apply.

Things where you wouldn't be subject to the NY telecommuter tax would be if you we e assigned to a company office in your resident state...or you were required to monitor an active  job site in your resident state (like a construction site)......  
....but working from home, doing something that could just-as-well be done by a NY resident in the NY office...then NY taxes it.
__________________
there have been attempts in Congress to stop that type of taxation, but so far have gone nowhere.

[thomaslambrt]

I worked remotely from my residence in Michigan for a company located in NYC the entire year of 2018. The company currently withholds NYS taxes only (not Michigan taxes). IF I understand the article correctly i should do the following:

1) File a Federal income tax return
2) File a Non-resident NYS income tax return (already withheld from employer)
3) File a resident Michigan income tax return (not withheld from employer)

My understanding is that Michigan will recognize that i've already paid state income tax to NYS and will not tax my income. Please confirm this.

If I become disabled or unemployed which state would I file disability or unemployment with? Will there be any issues with this?

Thank you for your help!

[rebecca-m-schwar]

i have a similar situation! would love to hear a response

[SteamTrain]

Pretty close, but some clarifications.

1) yes, correct, but make sure you have every scrap of Federal filled prepared before you start in on either state....waiting of interest or investment income forms?....wait until you have entered absolutely everything in Federal before you even look at the state forms..
2) Again, Yes.  The NYS must be prepared BEFORE you get to the MI part.  NYS may use your total income from everywhere to set your tax rate, but only the NYS W-2 should be taxed when you are done.  During the non-resident income allocation interview..only the NYS W-2 is NYS-taxable income...all other types if income are zero's for NY.  (unless you personally own a business or rental property of some type in NY itself...you didn't' not anything like that)
3)  Last...you are a bit off here. MI calculates a tax on everything...even the NYS income...but to avoid double-taxation gives you a credit for most of the taxes that NYS assessed on it, but only up-to the tax that MI would have assessed.  

Example: IF...If...the NYS W-2 ends up getting taxed at 6.25% by NY.....MI would have taxed it at 4.25%...so in the end, MI will give you a credit against MI taxes for a 4.25% rate on it.  It's a bit messier than that, but the tax software deals with it as long as you do NYS nonresident preparation before the MI Resident.

Disability/unemployment for your situation...don't know....suspect it is out of NY, but I could be way off

[kristinelbly]

While it is true that New York has a very aggressive telecommuting law, the facts and circumstances of this particular case, I believe would be more appropriately governed by case law. In Matter of Thomas Huckaby, 5 NY 3d 427 the Court of Appeals concluded that a taxpayers work at home in Tennessee was for his own convenience. The taxpayer, over a period of two-years, only worked in NYS for 25% of the time. The court found that those activities rose to the level of "minimal connection" required by due process to justify taxation in New York State. I cite specifically to this:

"In Zelinsky, we found the minimal connection called for by due process on account of the taxpayer's "physical presence in New York and because he . . . purposefully avail[ed him]self of the benefits of an economic market in" New York (Zelinsky, 1 NY3d at 97 [internal quotation marks omitted]). Here, petitioner objects that, read and applied literally, the convenience of the employer test would allow New York to tax 100% of the income of a nonresident who worked out of his employer's place of business in New York just one day a year. He argues that due process demands proportionality in order to prevent this presumed overreaching. Whether due process would countenance this particular result taxation of 100% of the income of a nonresident who spends a trivial amount of time working in New York is simply not before us. We conclude that the minimal connection required by due process plainly exists in this case where petitioner accepted employment from a New York employer and worked in his employer's New York office approximately 25% of the time annually. Moreover, the amount of time that petitioner spent working in New York 25%is significant enough to satisfy any rough proportionality requirement called for by due process."

Here, I would argue that the single day worked in NYS, would not rise to the level of "minimal connection" required under due process. Thus, I would advise that you should only allocate income to New York State on the prorata basis of one New York workday, over your total amount of workdays in all other locations. 

My background to advise you on such matters is that I'm a licensed enrolled agent, former New York State auditor, and currently work in a State and Local Tax group, specializing in New York State tax matters, at a large law firm. 

[SteamTrain]

@kristinelbly 

Maybe, but with the caveat that it is highly unlikely (opinion) that  TTX would support a legal fight with NY over this, and you must be ready to fight NY about it yourself, or hire a tax attorney to fight NY over it.   

Most individuals are just not ready to take the stress and costs of that type of conflict themselves. So they would just proceed as recommended in the directions above your post.  A corporate entity would certainly be willing to take NY on in some instances, but not most individuals.

Certainly, if someone has the $$ & means to re-file a tax lawsuit in NY over this, they can do so.  Otherwise, just continue to monitor the situation, and support any congressperson who supports the passing of national Telecommuter Tax Fairness Act similar to (though there are likely more recent tax bills): 

https://www.govtrack.us/congress/bills/112/s1811 

[kristinelbly]

I highly doubt that this would ever amount to a legal battle in New York State on this issue. It's a pretty reasonable argument that abby pro-se taxpayer could make.  The language in Huckaby makes it pretty evident that had it only been one day, their ruling would have been different. Turbotax should defend any position where there is substantial authority. Clearly the statute isn't 100% clear or cases such as Huckaby wouldn't exist. I think this advice is being hyperconservative, and causing the taxpayer to pay taxes to NYS that they do not owe in the first place.

First, IF they get a resident credit, it will only be up to the amount of tax that would be due in their home state. If their home state has marginal tax brackets less than NY, and most do,  they will be out of pocket the delta in the tax rates.

What if their home State doesn't have a telecommuting rule (most don't) and instead are a physical presence state? The days worked at home are counted as workdays in that state too. So no resident credit would be allowed. Connecticut just changed their law as of this year, to recognize this issue, since so many taxpayers were being whipsawed in both states.

Telling someone to just pay the tax and take a resident credit, is in my opinion a far less defensible position. If your home state gets around to auditing you for an excessive resident credit,  it may be after the statute of limitations on a claim for refund has expired in NYS, potentially subjecting a taxpayer to taxation in two states on the same income. 

[kristinelbly]

Oh and I should have said that the answer to the main question is that the taxpayer should use form IT-203-B to identify the day worked in NY,  and source the prorata portion.

Based on the original question it sounds like the employer properly withheld only one day, but reported the full income amount.  Which suggests the employer is also in agreement here.

If the taxpayer gets audited, they should call their employer for support. Their employer would want to defend this position. Its likely they have other telecommuters, and agreeing to this would potentially create exposure to them for withholding tax purposes. 

[johnf38358]

I like your answers and explanations. is there a way to contact you for a privet consult?

[20TCon]

@DanielV01 @SteamTrain @kristinelbly

It does seem well established in the instructions for the NYS Form IT-203 and New York State Tax Law 631(b)(1)(B) that income derived from NY State sources such as a "business, trade, profession, or occupation" are taxable to nonresidents working outside of the state for their own convenience.  The situation is less clear, however, for nonresidents that reside & work wholly without the State for the entire year (meaning 0 days per year within NYS).  Could anyone provide more insight on the tax requirements for this situation?  The rules set forth in 20 NYCRR 132.4(b) seem to indicate that income earned by a nonresident completely outside of NYS should not be counted towards their NYS AGI:

"The New York adjusted gross income of a nonresident individual rendering personal services as an employee includes the compensation for personal services entering into his Federal adjusted gross income, but only if, and to the extent that, his services were rendered within New York State. Compensation for personal services rendered by a nonresident individual wholly without New York State is not included in his New York adjusted gross income, regardless of the fact that payment may be made from a point within New York State or that the employer is a resident individual, partnership or corporation. Where the personal services are performed within and without New York State, the portion of the compensation attributable to the services performed within New York State must be determined in accordance with sections 132.16 through 132.18 of this Part."

Additionally, Matter of Kumar (ALJ May 6, 2010) presents an issue where a NJ employee was charged taxes on income said to be related to a NY sales office.  The ALJ ultimately determined that no tax was due, however, because the individual worked 0 days in NYS.  I am hesitant to fully rely on this case for guidance, however, as the main office of the employer in this instance was located in Illinois and only the sales office was in NYS.

[DanielV01]

I'm not an attorney so I can't comment on the legal issues, but rather how New York has applied the doctrine.  That one case you cite is well known and is the "outlier" when it comes to New York's telecommuter policy.  Since in that case there was no real office in New York, and since the taxpayer did no work in New York, New York couldn't tax him even with their "convenience of the employer" doctrine.

When a New York company has a New York nonresident employee doing work for them, often times New York requires that the company include all of the income on Form W2, and then it is up to the taxpayer to allocate which of that income is earned "without of New York" by using Form IT-203-B:2019:Nonresident and Part-Year ... - Tax.ny.gov (PDF attachment you can open).  On that form, pay particular attention to the line 1j.  You will notice that the preceeding lines ask how many days (while working on behalf of a New York company) were worked outside of New York to determine the allocation percentage.  But 1j excludes the days working "outside of New York" that were worked from home.  That is the application of the "convenience of the employer" test on the New York form.

And that form is used because New York will not allow businesses inside of New York to assume that their workers are not subject to New York taxation.  So, the NJ resident who is working for a New York company will have all of his income reported to New York.  If he took a one-month business trip to Texas, the portion of the income earned while he was conducting business in Texas will be excluded from his New York income, because he is not a New York resident and can't be taxed on income earned outside of New York by New York.  (New Jersey, of course, will be taxing him).  However, if he is telecommuting from home, New York does not allow those days to be excluded from the "total days worked within New York" calculation.

Hope this is helpful @20TCon.

[20TCon]

@DanielV01 - Thank your for the informative follow-up, this was definitely helpful.

The rules set forth in 20 NYCRR 132.4(b) contradict the direction being provided, however: they explicitly state that the compensation earned by a nonresident working wholly without the State, regardless of whether the income is coming from an employer located within New York, is not counted as New York adjusted gross income for that individual.  Following the instructions for Form IT-203 (see "Who must file?" on Page 7), it is only required for an individual with a NY AGI exceeding their NYS standard deduction to file Form IT-203 (there are 4 other requirements listed that could trigger the need to file, but assume that none of these apply for the sake of discussion).  Assuming that such an individual's only earnings from NYS come from this employer, it seems very possible that their NYS AGI would be $0 per 20 NYCRR 132.4(b).

If an individual should never expect to visit NYS during the year, it's also possible that their employer would not withhold any state taxes.  Per Technical Memorandum TSB-M-12(5)I, the employer is not necessarily required to withhold taxes if the nonresident employee shall work less than 14 days in NYS.  Given this scenario, a nonresident employee working wholly without NYS would have $0 in withheld taxes and would not be concerned about filing for a refund, but they would still be concerned whether they actually have any NYS Tax Liability.

20 NYCRR 132.4(b), seems to directly state that nonresidents employees working wholly without NYS are not required to pay taxes on these wages earned.  It's very confusing because the NYS Tax Laws and forms previously referred to in this thread all seem to imply otherwise, but none of them explicitly detail the scenario when a nonresident never steps foot within the State.