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Q8-tax_comm
Returning Member

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

My wife and I reside in NY.  My wife started a job in Jan-2022 with a company based in CT.  She works 100% remotely from our home in NY.  We noticed on her W-2 that both CT and NY are shown as having state wages (box 16) and state income tax withheld (box 17).  The wages associated with NY match what's shown in box 1 for Federal and the wages associated with CT are a little bit less (no idea why they're different or if it matters...)

 

When she asked her employer why she had taxes withheld for both states, they admitted that when she was hired, they erroneously set her up in their payroll system as if she was going to be working from their CT office.  They said they have now fixed it in their system going forward but that they will not be issuing a corrected W-2.  In addition to our NY filing, they advised filing a non-resident CT state tax return to have the CT state taxes refunded.  Conceptually, this makes rational sense to me, but looking for someone with "subject matter expertise" to validate if this is true?  And if true, what is the correct procedural way to perform this using the TT software (desktop version), as I am confused as to the proper way.  I have seen references in online searches to "zero'ing" out the "CT source income" on CT1040-NR/PY, but I'm unsure how to do this properly.  We are married filing jointly and our joint Federal AGI automatically flows to line 1 on CT1040-NR/PY.  It looks like I can "mathematically" get the software to produce what I think is correct by doing either of the following:

A)  Use the "subtractions to Federal AGI" function to enter in a value equal to the Federal AGI (schedule 1, line 52), which will make CT AGI (line 5 of CT1040-NR/PY) equal to 0 ($Fed AGI minus $Fed AGI = $0).  And then also use Part 1 of schedule CT-SI (non-resident schedule of income from CT sources) to show gross income from CT sources equal to $0 (line 15 of CT-SI), which then flows to line 6 of CT1040-NR/PY.

B)  Don't bother with the "subtractions to Federal AGI" function.  Let it flow.  Still use Part 1 of schedule CT-SI to show gross income from CT sources equal to $0 (line 15 of CT-SI), which then flows to line 6 of CT1040-NR/PY.

As long as line 6 of CT1040-NR/PY shows $0, total CT tax is $0 and our refund will be generated.  "A" allows the ability to provide a small explanation of the situation that we're trying to remedy.  "B" does not.  And we're not sure if either is correct or if another approach is required?  I also see in the NY tax section of the software, the ability to enter taxes paid to another state as a credit on the NY taxes, which I'm guessing does not apply if trying to handle getting the CT taxes that were incorrectly withheld back through the CT1040-NR/PY?

 

Calls to the Connecticut Department of Revenue Services yielded little help on "how to correctly" navigate this through the filing process.  We would greatly appreciate any guidance here!  We're sorry for the long note, but we were trying to be specific in hopes of getting specific feedback.  Thank you!

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5 Replies
MaryK4
Expert Alumni

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

Connecticut has a Convenience of the Employer rule that applies to states that have a similar rule (which includes New York).  Connecticut requires New York residents who work remotely for a Connecticut employer to file a nonresident tax return reporting all income.  You will then be able to claim a credit on your New York state return for the taxes paid to Connecticut so the income is not double-taxed.  

 

[Edited 04/17/23| 2:15pm PST]

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Q8-tax_comm
Returning Member

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

Thank you MaryK4!

It's been confusing because when the tax form says "income from Connecticut sources", it was making us wonder "well, her paycheck was technically from the company that is based in CT, so does "source" mean "company HQ location"...  which was CT, regardless of the fact that she worked 100% from NY...  so can you really put $0?  After reading a bunch of online info, getting guidance from the company and now your response, it makes us think that had she physically worked in CT for any amount of time, she'd have some level of income from CT sources - but given that she worked 100% of the time remotely from our residence in NY, that her income for CT sources is $0.  So "source" has more to do with which state the employee worked in than where the company HQ is located that generated the paycheck? - am I thinking of that correctly?

 

A related additional question if you (or anyone) has any guidance on is...  my wife's company also withheld dollars to pay into the CT paid family leave fund.  Should this have happened, or should it have been NY's PFL?  And specific to tax filing, do we need to do anything specific for this dynamic when filing Federal?  CT?  and/or NY?

 

Thanks so much!

MaryK4
Expert Alumni

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

For compensation-purposes only, state source in most cases in the location the work is performed.  You are correct that if she had a "hybrid" schedule, the state wages would be allocated.  I also want to refer you to New York Convenience of Employer Rule - TurboTax Support, and How does working remotely affect my state taxes?  for reference.

 

As far as the Paid Family Leave, you should first check if NY PFL is on her W2 (usually if the state tax is withheld so is the PFL).  You can request from the employer to have the Connecticut PFL returned.  

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Q8-tax_comm
Returning Member

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

Thanks for the follow-up response MaryK4.  Well, I thought I was clear on what to do after your 1st response.  Given a) my wife physically works in western NY, approximately 7 hours away from her company's HQ in CT, and b) our discussion about "state source income" is most of the time related to the location of where the work is performed (in this case, NY), I felt pretty good about showing CT source income as $0.  However, in your 2nd response, you attached a link to "how does working remotely affect my state taxes?"... and in that link, I found the following statement "Connecticut, Delaware, Nebraska, New York, and Pennsylvania, follow an employer “convenience rule” which taxes you where your employer’s office is, even if that is not the state you are actually working in."  Since CT and NY are the 2 states involved in our situation, does the initial guidance to show CT source income as $0 still apply?  Unless I'm misinterpreting the reference linked to the 2nd response, the link comes across as CT being the source income state ("where your employer's office is").  I apologize for not understanding clearly.  Thanks for sticking with me on this.

MaryK4
Expert Alumni

Lived in NY and worked 100% remotely from our NY home for a company based in CT - W-2 shows wages (box 16) and state income tax (box 17) for both CT and NY - how to file?

Thank you for being diligent.  I am going to edit my answer above so it is updated with the correct information.  A lot of the rules changed when the Covid pandemic hit and many workers went remote (especially affected were employers and employees in areas close to the bordering states).  This is the general rule, but if a Connecticut employer has a New York office, they can withhold the New York taxes only- so you may want to verify this. @Q8-tax_comm 

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