NJ resident with 100% salary from NY employer in 2022. Why my employer deducted < 1% of NY state taxes, which resulted in under payment penalty, besides balance NY taxes?

[oswaldjude]

This is a new employer in 2022. All my past employers withheld just enough in NY state taxes in box 17, that allowed me to transfer the credit to NJ. But this year, my new employer reduced a trivial amount towards NY state, that now has me paying a penalty each day until paid, besides paying balance of NY state taxes. Contrarily, I see a large amount of NJ taxes withheld that will entitle me to a NJ refund. I know the tax portion balances out, but it doesnt solve the NY underpayment penalty, which increases each day until paid.

[ErnieS0]

Speak with your employer and file new withholding forms for New York and New Jersey.

For NY, file Form IT-2104, and for NJ file Form NJ-W4.

It appears your new employer either started NY withholding at the end of the year or stopped NY withholding and switched to NJ shortly after you onboarded.

Are you actually working in NY full-time? Or are you remote? You say your salary is 100% from a NY employer, but another reason you may not have much NY withholding is that your employer classified you as a NJ employee, in which case you may not have to file a NY nonresident return, or you may only have to report NY income for the days you were working in NY.

[oswaldjude]

Thank you for your response. 

Yes, I am employed full-time. My condition of employment is a hybrid schedule by telecommuting until further announcements. My permanent residence full year was in NJ. I was employed by a NY state employer whose HQ is in Manhattan and i believe this classifies me as a NY non-resident.

Even though I worked from home most days a week; some weeks even full 5 days, per ny.gov: “If you are a non-resident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.” I was only provided a work laptop. Am I not required to file IT-203 being a nonresident and also since box 15,16 and 17 has both--NY and NJ taxes withheld? However, taxes withheld for NY in 17 are less than 0.5%.

I would likely need to file IT-203, calculate the taxes owed and use that number as the taxes paid to other jurisdictions… Using this method, I do receive a refund from NJ that will offset the taxes I owe NY. But in addition to paying NY taxes, I am also penalized for underpayment! I am trying to avoid this penalty as it increases each day beginning 1/1/23 that I am late in paying my taxes.

Also, I do not recollect submitting a W4 for NJ. BTW, I do not have records of which days or how many days I commuted to the office in NY; nonetheless the telecommuting schedule is not up to my discretion. Did I miss something in my preparation? Don't I qualify as a NY non-resident?

[ErnieS0 · Accepted solution]

Yes. You would file a New York nonresident return regardless of what your employer withheld for NY because you worked some days in New York. Since your employer withheld almost no New York tax, you will owe NY and get an excessive refund from NJ.

New Jersey will give you a credit for tax paid to NY PLUSis you had NJ tax withheld on some or all of that income.

You can file both returns and pay NY after you get your NJ refund. The New York filing deadline is April 18.

New York has a “convenience of the employer rule,” meaning if you telecommute for your own convenience, you are subject to NY tax.

Your wages are probably 100% New York, though you may be able to allocate days worked outside NY as non-NY income. Each case it different. It depends on the number of days worked outside NY and your working arrangements.

NY is very aggressive about taxing telecommuters. Taxpayers have lost cases when the facts were clearly in their favor.

The best thing is to get would withholding fixed.

TurboTax has an excellent discussion about the “convenience of the employer” rule including posts by a former NY state auditor at “I work for a NY company, remotely from NC. I spent 1 day in 2017 on site, but my W-2 has full salary...