NYS severance taxes for expat

[Saad2027uk]

My husband worked for this company 17 years and was made redundant in 2021 and paid a lump sum.  
The last 9 years he has been in the uk working for this company but paid as an expat in USA dollars.    thus he is a non resident of NYS the last 9 years.  
kpmg filed our taxes and shows he is being taxed on all the days in the past 17 years he worked in NY.  For example, the lump sum received in 2021, has him paying nys tax for the years 2004-2012…..

is this right? Why would the severance payment be backdated ? I would think he was paid a lump sum in 2021 and the income would be not eligible for nys tax as it was earned this year and we live in the uk. 

they said they reduced US taxation on the severance payment by treating the severance payment as 100% foreign source income. however, could not do the same for NY purposes since they do not follow foreign treaty provisions

any insight would be helpful 

[rjs]

What makes you think that anyone in this TurboTax forum knows more about international taxation than KPMG?

Ask KPMG to explain why the severance is considered New York source income, or why you and your husband are filing a New York tax return at all, if you neither live nor work in New York. (However, New York is aggressive about taxing people, especially high-income people, who claim to have left the state, but still have enough ties to meet the definition of a New York resident. Discuss this with KPMG.)

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@Saad2027uk wrote:

the lump sum received in 2021, has him paying nys tax for the years 2004-2012….. 

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I don't understand that. How could he be paying tax for past years on his 2021 New York tax return? You might have misunderstood something. Again, ask KPMG all of your questions.

[Saad2027uk]

they explained the severance is for the years 2014-2022.  So 2014, he worked in nys 220 days since we lived there.   Same with each year up til 2012.  And they are taxing us as though he earned the severance in those years.  And then owe NY money.    It doesn’t make sense.  It was paid in 2021. They are taxing as if it was earned and paid in the earlier years

[TomD8]

@Saad2027uk --

KPMG is doing your taxes correctly. 

NY tax law states: "The New York adjusted gross income of a nonresident individual includes items of income, gain, loss and deduction entering into his Federal adjusted gross income which are attributable to a business, trade, profession or occupation carried on in New York State." 

Tax Law, § 632(b)(1)(B)” N.Y. Comp. Codes R. & Regs. tit. 20 § 132.4

[Saad2027uk]

They are saying he has to pay tax on severance based on it being earned over a 17 year career.  This is the answer from kpmg but I don’t agree with them.  So I am

asking if anyone else has better advice.  
They say tax each year from 2004 forward.

  But a friend in tax mentioned to me NY safe harbour rule which says NY should only the last 3 active years of severance pay, so 2018 forward.  Which would mean he was not physically present in NYS those years and not owe taxes on the payout.  That’s $8,000 reasons why I want to know if anyone else had dealt with this situation. I’d be a fool to just trust kpmg alone.  They have made errors in the past

[NCperson]

@Saad2027uk - 

1) ask KPMG to show you the law that they are following

2) find another firm that is of the size and stature of KPMG and be willing to pay them for the advise.

3) if your friend believes there is a safe harbor rule, they need to provide the documented evidence from the State.   Otherwise, does it really exist or is it just an 'urban myth'?  

Hard to believe a firm as large as KPMG, with many clients in your situation, would not have a clear and documented approach for this issue.  They probably see it 'all the time'.

What I gather is that since the severance was based on the number of years of employment (and so was "earned" in all those prior years), the part that was 'earned' years ago when working in NY, is subject to NYS income tax now. 

Also, and I am not a lawyer (but I can read!), see this link.  

https://www.tax.ny.gov/pdf/advisory_opinions/income/a05_2i.pdf

if you read through the example on page 5, it does appear that the calculation goes back to the years working in NYS (and a close look at the example is that is does go back more than 3 years, debunking that there may be a 'safe harbor' rule). 

[Saad2027uk]

This is not just legend.  yes of course She provided documentation to back up sage harbour law.  This is it :

https://www.tax.ny.gov/pdf/memos/income/m10_9i.pdf

https://www.hodgsonruss.com/assets/htmldocuments/2020tns11-4.pdf

[NCperson]

@Saad2027uk - then use those documents to discuss with KMPG...... you have to convince them. 

Also, I would be careful,  as a quick read of your links (and again I am not a lawyer) references that three year lookback related to pension and retirement income.  If you look at the link I provided, the State defines pensions having an annuity payment and a severence payment is not an annuity. 

The question is whether severence is considered 'pension and retirement' income by definition otherwise the document is not on point to your dilemma. 

it's really best to have this conversation with KPMG or hire another firm to complete your taxes if you do not have confidence in KPMG.  

[TomD8 · Accepted solution]

More grist for the mill:

Here is the full text of New York's law regarding New York source income of a non-resident:

https://codes.findlaw.com/ny/tax-law/tax-sect-631.html

As far as I can tell, the only provision that would exempt a portion of the severance income from NY taxation has to do with former employees whose work was carried out partially within and partially without the state of New York (section (c)).

Also see this New York tax memo:  https://www.tax.ny.gov/pdf/memos/multitax/m18_2c_3i.pdf

[Saad2027uk]

We just spoke to kpmg.   They said the safe harbour rule DOES apply and that being the case we will not owe NYS any money since he has not worked in the state the last 9 years! They said someone made a mistake in kpmg for sure!  They will be re doing our taxes and correcting it. Hope this post can help another expat in a similar situation