I work for a NY company, remotely from NC. I spent 1 day in 2017 on site, but my W-2 has full salary in the state earnings boxes for both NC and NY. How can I allocate?

[b87lar]

@TomD8 ; @DanielV01 ; @goodfella; @kristinelbly 

I have a "novel" variant of the issue discussed in this thread: 

I work for a NYS company. Have lived and worked remotely from UT since 2020. Set foot to NYS for 0 days in 2022 (same for 2021). Sometime during 2022 (during second quarter), work manager changed my "official" work location in the HR system to UT and since then payroll switched to withholding state taxes to UT. 
It was reaffirmed in this thread that with 0 days of physical work in NYS I am not subject to the convenience of employer test. I just have this wrinkle of my employer having paid some taxes to NYS. Do you recommend I proceed and allocate all my income in my home state, or (in light of the partial NYS taxation on W2) play safe and pay NYS taxes (and have UT credit it)? 

[goodfella]

You should be able to allocate all income to UT and then get a full refund from NY.  Assuming, as you said, you spend 0 days and did not step foot in NY for work.  NY will most likely fight you and you will have to send documentation, letters from employer, etc to prove you didn’t go to NY for work.  After months of labor you will likely get your full refund. Be prepared to not give up. 

[kristinelbly]

@b87lar the issue, is that whether you realize it or not, you've potentially subjected yourself to tax exposure in two states. The resident tax credit you took in years 2020 and 2021, on your Utah tax return, was not correct. In order for you to receive a tax credit in your home state, the income must be sourced to New York, under the laws of Utah. There are only a few states that have a "Convenience of Employer" rule (Connecticut, Delaware, Nebraska, New York and Pennsylvania) and Utah is not one of them. 

Which means Utah considers your days worked at home, as Utah workdays. New York considers your days worked at home as NY workdays, unless you have a valid argument otherwise. There is no reciprocity between the states. So you would owe tax on your wages both to NY and UT. 

So I would advise that you take the correct position, and request a refund from New York, and pay the taxes owed to Utah. Whether you choose to amend and correct the issue for 2020/2021 is up to you, you will owe interest and potential penalties to Utah to correct the mistake (I think you could request a penalty abatement, citing your employers treatment of the income). Depending on your income threshold, the tax rate in Utah may be lower than your tax rate in New York. 

My clients who have 0 workdays, and are able to produce a letter from their employer to that fact, have had no issues on desk audits. Its a respond to the audit notice with the letter from your employer, cite 132.18(a) and Matter of Hayes referenced herein, and get your money back. Its a pretty black and white issue. Based on the Withholding Guidelines issued by the State of New York for employers, your employer shouldnt have been withholding NY wages anyhow. 

2009 NYS Withholding Guidelines (p. 41) states:

Employees who expect to perform no services in New York may submit, but are not

required to submit, an IT-2104.1 to their employer estimating a percentage of services

performed in New York of 0%. The employer may rely on the IT-2104.1 as long as the

employer does not have actual knowledge or reason to know that the Form IT-2104.1 is

or has become incorrect or unreliable.

The 2004 Withholding Guidelines (p.25) are even clearer to the point:

Days Worked at Home and Telecommuting - Days worked at home by New York State

nonresidents are usually considered to be days worked in New York if the

employee’s primary work location is in New York State. In general, if the

employee is working at home for the convenience of the employee, as opposed to

the necessity of the employer, these days will be considered days worked in New

York State. However, if the employee does not enter New York State during the

tax year, income tax withholding is not required.

[AmyC]

You lived in UT all year with no work done in NY, you can prove it so you should claim it.

@b87lar 

[b87lar]

So, I have proceeded with filing my NY return according to the helpful discussion in this thread. Btw, TT made me mail a hard copy - it seems NYS won't accept electronic filing if wages allocated to NYS are set to 0. I will keep you posted on progress.

Now, re asking employer to generate a letter: what information should this letter ideally contain?
Obviously, (1) statement that I haven't been physically present in NY for the 365 days, (2) personal information like social security number, DOB, address (?) Anything else? Does it need to be coming from HR or from direct report (or doesn't matter)?
@kristinelbly @TomD8  @goodfella @DanielV01 Thank you! 

[TomD8]

Personally, I wouldn't bother with a letter unless my return were challenged by New York State and they came back and requested such a letter.  (I'm not necessarily making this recommendation; I'm just saying what I would do in the circumstances.)

If New York were to request a letter from you, no doubt they'd tell you what information they want.

[goodfella]

You can file electronically by putting $1 in for NYS.  They understand the limitation of electronic filing for those claiming 0, so it’s been acceptable in practice to do this in order to efile. One respondent said they wouldn’t bother with the letter - please let us all know if you become the first person NYS doesn’t request a letter from.  The letter theoretically could come from anyone who has authority to know where you were during the tax year and has access to records - usually HR is the easiest way to do this.  The NYS response letter will be more specific in what they want in the letter - but some employers take a looong time to get this letter together so doesn’t hurt to let them know you likely will need it soon.