New York Nonresident State Tax - audit

[wkarrjohnson]

I've been with my NY-based employer as a remote worker for 8 years. Throughout that time, my employer has only withheld taxes for my home state as they said I was not liable for NY taxes since I don't live there. As a result, I used TurboTax only to file my home state taxes.

This week I receive notification that my employer would be withholding NY state taxes beginning 1/1/22. The form includes my start date.

Now I am worried that filing this tax form will trigger an audit for past years taxes due. Should I go in and amend my previous taxes and file NY state taxes?

[rjs]

I wouldn't rush to file New York tax returns for past years. Get more information first.

Did the notification about the withholding come from your employer or from New York State? Ask your employer's payroll department what triggered the change.

Why are you working remotely? This might turn out to be a key question. Is it because your employer wants to have an employee located in your state for business reasons, or is it because you prefer to live there and don't want to live in New York?

What state do you live in?

[wkarrjohnson]

The notification came from my employer, who was prompted by their auditor to make the change. I live in Minnesota. I understand that means the state will give me credit for taxes paid to NY.

I was hired as a remote worker as they do not provide office space for us in NY and moving was never a stipulation of my employment. My employer's auditor for the first time this year determined that we do not meet the threshold for being remote by necessity butare considered "convenience employees" which means they have determined we are liable for NY taxes. 

[rjs]

Starting to pay New York tax is not necessarily going to trigger an audit. I would not file New York tax returns for past years, or amend your past years' tax returns. I wouldn't even file a New York tax return for 2021 if your 2021 W-2 doesn't show any New York income. Just start filing in New York for 2022.

This is just my personal opinion, not professional advice. If you can talk to the company's auditor, you could ask them what they think you should do. Or you might want to consult a local tax professional for advice.

[wkarrjohnson]

Thank you! I'm guessing then that I need to have withholdings in both Minnesota and New York and then file for a credit from Minnesota at the end of the year. Is that right?

[rjs]

I don't know how Minnesota tax rates compare to New York. If they are lower, and you don't have any significant other income, you'll probably have to pay very little or no Minnesota tax. If that's the case, you wouldn't need any Minnesota withholding at all. The withholding is supposed to approximate the tax that you have to pay for the year. You don't have to have tax withheld if you know you are going to get it all back at the end of the year.

You could do what-if 2021 tax returns for New York and Minnesota, using your 2021 income, just to see how it works out. That would help you decide whether you need Minnesota withholding, or how much to have withheld for each state.

[wkarrjohnson]

What a great idea. Thank you!