NY/IL and NYC tax

[vg222]

I was a NYC resident from Jan-Mar 2020. I moved to IL at the end of March but continue to work for a NYC based employer. I paid rent on my NYC apartment from March-June but returned in June to move out and have since had no presence in NYC. I would consider IL my domicile as I am living with my parents and have an IL drivers license/voter registration.

I am currently planning to file as a part-year NY&NYC resident from Jan-Mar 2020 and an IL resident from Mar-Dec 2020. However, I may be asked to return to the NYC office in late 2021. My withholdings in 2020 were NY+NYC from Jan-Oct 2020 (my employer continued to withhold NYC taxes until I requested otherwise, even though I moved out in March) and then just NY from Nov-Dec 2020. I have had no withholdings in IL.

1) I expect to be able to claim a credit on my IL returns for the  full year taxes I paid to NY using Schedule CR, is this accurate?

2) Do I owe NYC taxes while I was living in IL because I may return to NYC by the end of this year, even though I currently maintain no presence there? NY may get suspicious if I claim to have changed domicile and then come back within  a few years. I am still paying NY taxes (due to the convenience of employer rule) but I am not sure if should also be paying NYC taxes for the same reason.

I appreciate any help you can provide and thank you for your time.

[ErnieS0]

New York state follows the "convenience of the employer rule," meaning you are subject to NY tax regardless of where you work unless you are teleworking for a legitimate business reason.

From your description, it seems to me that your entire earnings are subject to NY state tax since you continued to work for the same NY-based employer who is asking you return to your NY office in 2021. However, if your employer stopped withholding NY state tax, it may be their opinion that you meet the qualifications to be a remote employee not subject to NY state tax. I would discuss this situation with your payroll department as the facts and circumstances of each situation are different.

It further appears you are subject to New York City income tax from January to June since you paid rent and maintained an apartment in NYC, If you use March, on audit, you may have to show steps of your efforts to establish residency in Illinois from March.

New York aggressively audits telecommuters. If audited you will be asked to provide an allocation of days worked and evidence that you worked from a bona fide office during days outside NY.

New York says:

If you are a nonresident 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.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.

See: Frequently Asked Questions about Filing Requirements, Residency, and Telecommuting for New York Stat...

[vg222]

Thanks for your detailed response! 

I am fine with paying full-year NY state taxes as a telecommuter from IL. My employer has withheld NY taxes the whole year but only withheld NY City taxes from January to October - sorry if that was confusing. I am mainly wondering if the taxes I am paying to NY due to the convenience of employer rule will allow me to take a credit for the taxes I would otherwise owe in IL for being a resident there starting in March.

Regarding your point on NYC taxes - it will certainly be more difficult to show I was an IL resident starting in March rather than in June, but it sounds like if I provided enough evidence that I did in fact move to Illinois in March, then I would have a case for only paying NYC taxes from January to March. Does that sound accurate? Or does the fact that I paid rent till the end of my lease in June (maintaining a permanent place of abode) mean that I'm still considered a resident of the city until my lease ends?

[DanielV01]

Regarding taxes paid to another state, Illinois will allow you to claim a credit for the tax you pay to New York on the balance of income you earned after moving to IL.

Regarding NYC taxes, the presumption is also correct, but New York is notorious for asking for proof.  So if you don't have proof, use the date that you can prove, and prorate your NYC income accordingly.

The New York return allows you to do this, because it will ask you (since you will be preparing IT-203 regardless) how much of the income was earned as a nonresident of New York (state).  That same income amount will automatically be deducted from the NYC portion of the calculation since NYC does not tax nonresidents.

[vg222]

Thanks, that makes sense. One more follow up - what would generally be considered acceptable proof of my move? I have credit card statements showing constant activity in IL after March and a flight ticket on the day of the move, but I'm not sure if there's a more official way of proving that I moved from NY to IL in March. Since I am likely to deal with this same issue in 2021 if I move again, it would be great to know how to best document moves for future reference.

[DanielV01]

The most obvious proof will be a rental agreement/mortgage closing.  If you obtained a driver's license, that also could establish Illinois residency.  And you can look up Illinois residency statutes as well, because if you fulfilled their requirements for becoming an Illinois resident, and have the documentation to back that up, then New York will have to respect your residency upon proof.