Double Taxation between IL and NY State

[minivatreni]

Hi All, I am employed 100% remotely. I live in IL but my employer is based in NY. Because of the NY law of convenience I am receiving a NY W-2, and need to file a NY Non-resident return, as well as IL. 

I am technically not eligible for the credit for taxes paid to NY-state because the income was sourced within the state of IL, and I did not physically travel to NY to earn that income. Even though I have not stepped foot in NY, I am being double taxed.

What are my options here? Do I have an option to get my employer to give me an IL W-2?

[Anonymous_]

@Mike9241 

[Mike9241]

I am technically not eligible for the credit for taxes paid to NY-state because the income was sourced within the state of IL, and I did not physically travel to NY to earn that income. Even though I have not stepped foot in NY, I am being double taxed.

doesn't seem to agree with Illinois  IL 1040-CR instructions. However, forms and publications are unofficial from a standpoint if they conflict with the actual tax laws.

in another thread, most OPs stated that you could claim credit for the double tax income. however, one respondent had a different answer supposedly based on actual experience.

https://ttlc.intuit.com/community/state-taxes/discussion/live-in-il-but-work-for-ny-company-unsure-a... 

Not true. I just went through this. IL Department of Revenue is going to send you mail audit asking for your employer to provide days worked in each state. No employer will do that and therefore IL will not allow credit. Publication 302 exception (? no current Ill PUB 302). Also, there is a case that went through the IL court system in 2015 that allows for that double taxation scheme, so basically save yourself 10% in penalties and pay tax in both states…

‎July 6, 2022 5:08 PM

I do not know NY law so is it possible that you are entitled to a credit in NY for the wages taxed by Illinois? 

[minivatreni]

Thank you - it looks like people are filing for the credit and getting it successfully.

When I read the instructions for Illinois Schedule CR: column b, you are to put the non-Illinois income “as determined using Illinois’ rules for sourcing income.” I cannot for the life of me find Illinois’ rules for sourcing income anywhere... Therefore, I assumed that income sourced in IL-state would not be eligible for the credit. California has a similar rule for denying credit, but you can easily read about this online. 

[Critter-3]

In the TT program you will complete the non resident NY return FIRST  and then the resident IL return where IL  will give you credit for the taxes you pay on the NY sourced income because NY taxes remote workers.  

[minivatreni]

Yeah, except I am not eligible for the credit under IL law since the income was sourced in IL and not in NY. 

[Critter-3]

You are confused ... the income was NY sourced income  as a remote worker which means they get to tax you as a non resident.  Now since you live in IL they get to tax ALL your worldwide income on an IL resident return however you do get a credit for the taxes paid to NY on the same income.  Again complete the NY non resident return first and then the IL resident return so the credit will populate automatically.  

[minivatreni]

I am not confused. Someone I know got audited for this same issue. I will link the comment to you so you can see verbatim:

"Not true. I just went through this. IL Department of Revenue is going to send you mail audit asking for your employer to provide days worked in each state. No employer will do that and therefore IL will not allow credit. Publication 302 exceptions. Also, there is a case that went through the IL court system in 2015 that allows for that double taxation scheme, so basically save yourself 10% in penalties and pay tax in both states….

W-2 doesn't show Illinois wages but I believe under Illinois law since all the work was performed in Illinois the wages should also be shown as Illinois wages.  Income taxed by NY would have to be also taxed using IL income definition to be eligible for credit.  As NY has convenience of the employer rule and taxes based on that and IL would not tax that income using it’s rules you will be basically double taxed and not eligible for this credit. One way out of it is for the employer to create a bonafide office for you, stop NY withholding and withhold just IL taxes. "

https://ttlc.intuit.com/community/state-taxes/discussion/re-live-in-il-but-work-for-ny-company-un[pr...

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