I am planning on moving to Texas from New York and to my surprise I still have to pay NYS personal income tax if I work remotely out of Texas. After poking around I read NYS is a "convenience of the employer" state and I am moving out of NYS to Texas for personal reasons so according to that clause I am required to pay NYS taxes - as per my understanding of it - will any of the following help me be exempt from NYS taxes?
Option 1) My company has offices in NYC and LA (Headquarters). There is a three hour time difference between the two offices (EST & PST respectively), and since Texas is on Central Time working a 9-6 in Texas will equate to providing an hour more of coverage for the LA office since I will be essentially clocking out at LA's 4PM rather than LA's 3PM if I worked out of NYC. Is this sufficient for NYS to qualify this a "convenience of the employer" or is there more to it?
Option 2) Having HR switch my location on paper from a NYC employee to an LA employee with hopes that LA taxes are less heavy than NY's.
Thank you for any feedback and insights on my situation and feel free to provide any other possible options!
New York's "convenience of the employer" rule basically states that if during the tax year you as a non-resident of NY work both within New York and remotely from outside New York, then your remote work income is taxable by NY if you are working remotely for your own convenience, as opposed to having been assigned or required to work remotely by your employer. Think of a CT resident who works in NY and decides on his own that he'd prefer to work remotely from home every Friday. NY would still tax all his income, even though his Friday income was earned outside NY.
Time zones, check-in times, etc., are irrelevant.
On the other hand, California does not tax non-resident W-2 employees who work entirely remotely from a location outside California. CA has no "convenience of the employer rule." A Texas resident who works for a CA employer, but who never physically works within CA, would not be subject to CA income tax on his W-2 salary or wages. (I'm assuming that your "LA" abbreviation stands for Los Angeles, not Louisiana.)
Your employer should switch your location to Texas, not California. You will be living and working in Texas.
As soon as you move, make sure that your employer stops withholding New York tax, and that they do not report state wages for any state or withhold tax for any state. You will be a Texas employee, and they would not report Texas wages because Texas has no state income tax. Your W-2 should not show any state wages or state withholding, other than for New York before you move. It should not show any California wages or withholding because you are a Texas employee, not a California employee. We sometimes get questions from people whose employer did not handle this correctly. It can be difficult to correct after the fact.
It would probably be a good idea if you can connect to your employer's computer in Los Angeles, rather than in New York, so you would be telecommuting to Los Angeles, not to New York.
For the year that you move, you will have to file a New York part-year resident tax return. New York has an unusual rule that the state wages in W-2 box 16 have to be the same as the federal wages in box 1. Any adjustments are made on the New York tax return. So your W-2 for the year that you move will show all your income as New York wages. On your part-year resident tax return you will show how much was actually earned in New York.
Since your employer has a California office, it may be easier for them to simply assign you to that office. CA will only tax work you perform inside CA, regardless of whether you're carried as a TX-based or a CA-based employee. Just make sure the payroll department knows your State of Residence is Texas.
They can assign you to the California office, but you have to make sure that they do not report any California wages or withhold any California tax. Being a Texas resident will not stop them from reporting California wages. A resident of Texas (or any other state) who travels to the California office and works there has California income and has to pay California tax. There's a good chance that your employer has never had an employee who was assigned to the California office but didn't actually work in California. The payroll system might not be set up to handle that. It probably, by default, reports wages as being from the office you are assigned to, not from where you live.
If your W-2 shows California wages or withholding, California will assume that you worked in California, and will expect you to pay California tax. Being a Texas resident will not prevent that. As I said earlier, incorrect reporting can be difficult to fix after the fact. And California has a reputation for being particularly aggressive about collecting tax from anyone who they think should be paying it.
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