Pa résident and fully remote worker for NY company. Will I be subject to double income tax? I

[tomorgane]

I accepted a fully remote job for a NY based company last year.  I work from a home office.  I'm having trouble understanding each state's laws for this.  Will be able to claim a credit in PA for taxes paid to NY?  Can I be taxed by each state on the same income? 

[DianeW777]

You will pay tax on your worldwide income in your resident state of Pennsylvania (PA). 

Note: As for the PA information for remote workers-  they will not allow a credit for the taxes paid to NY.  This is new information since the pandemic.  From July 1, 2021, employees must apply existing tax law to their current situation. Residents cannot claim a resident credit for Pennsylvania source income even if the other state taxes their income.  PA Telework Guidance

NY State Department of Revenue site.  Since you were hired full time as a remote (not a telecommuting) employee, you are considered a 'remote' employee.  Since this is considered as working outside the state, then your income should NOT be taxed to NY.  You should not have any income taxable to NY and all state withholding should be refunded from NY.

• ... any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below in the link). Any day spent at the home office that is not a normal work day would be considered a nonworking day.   New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the...

Do not enter a second W-2 for the same employer. Based on this information NY should refund any state withholding and no income should be taxed to NY.

[Edited: 01/26/2022 | 8:34a PST]

[tomorgane]

@DianeW777 Does what you said supersede this?  Reading this is what caused me to panic in the first place.

https://www.revenue.pa.gov/COVID19/Telework/Pages/default.aspx

"Pennsylvania does not allow a taxpayer to claim a resident credit on Pennsylvania source income. Consequently, a Pennsylvania resident who is employed by an out of state employer but who is required to telework from his home in Pennsylvania cannot claim the Pennsylvania resident credit on his Pennsylvania tax return even if the state where his employer is located taxes his compensation."

[DMarkM1]

Your interpretation of the PA law is correct.  Your income earned from your home in PA is PA sourced income and taxed as a resident of PA. 

The NY employer should not be withholding NY taxes on that income.  You were hired as a remote worker and you are a non-resident of NY.  Here is a link that lists the non-resident income sources for NY. 

NY source income is for services performed in NY.  If there is NY withholding, you will file a non-resident NY return to claim a refund of those taxes paid. 

[tomorgane]

@DMarkM1  But then NY state says this :

"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."

https://www.tax.ny.gov/pit/file/nonresident-faqs.htm

[DianeW777]

Based on the link you provided the following information is shown for a NY nonresident.  This is not new, but is linked from the NY State Department of Revenue site.  Since you were hired full time as a remote (not a telecommuting) employee, you are considered a 'remote' employee.  Since this is considered as working outside the state, then your income should NOT be taxed to NY.  You should not have any income taxable to NY and all state withholding should be refunded from NY.

• ... any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below in the link). Any day spent at the home office that is not a normal work day would be considered a nonworking day.   New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the...

As for the PA information, it appears to be correct which means they will not allow a credit for the taxes paid to NY.  This is new information since the pandemic.  From July 1, 2021, employees must apply existing tax law to their current situation. Residents cannot claim a resident credit for Pennsylvania source income even if the other state taxes their income.

[tomorgane]

@DianeW777 

Reading the rules for PA, it states that "A Pennsylvania resident who is required to telework full-time from home in Pennsylvania rather than ...

The NY rule says that "

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."

So, if NY considers me "not required" to work from home, then PA would also consider me "not required".  If PA considers me "not required" then I would not owe tax according to the above quote from PA DOR.  I would have to think that both states would agree on whether or not I am "required" to work from home.  As long as they are in agreement either way, then I would only owe to one state and be eligible for the resident credit if I owe NY.  Right?

[ErnieS0]

It depends. States have different rules and the laws of one state are independent of the laws of another state unless specifically stated.

You should discuss this with your HR/payroll department as they know the law for your situation. You can deviate when you file your taxes, but you will probably lose during an audit and New York is very aggressive at going after telecommuters.

The state even sent out pre-audit notices beginning last fall asking for documentation of hours worked outside New York. 

Pennsylvania

A Pennsylvania resident is taxed on all income received, unless specifically exempt so all income from your New York job is taxable to PA regardless of whether you worked from home or commuted to New York City five days a week.

New York

New York has a "convenience of the employer rule", meaning you are subject to New York tax if you are working from home for your own "convenience" and not for the benefit of your employer.

If that is the case, your employer will withhold NY tax.

Whether you were hired as a remote employee may or may not make a difference. What matters is your office "reporting" location. If you are "New York-based" you are subject to NY withholding.

You would NOT be subject to New York withholding if you have a "bona fide" office in Pennsylvania.

Tax Memo TSB-M-06(5)I lays out the rules. Among the conditions for being PA-based would be:

• Home office is a requirement for employment
• Having a bona fide purpose for working from home
• Hosting clients/patients/customers at the home office
• No office space provided in New York
• The employer reimburses your for home office expenses

Other state tax credit

PA will give you a tax credit for tax paid to NY. The NY tax rate is higher so generally you will owe no PA tax if your only income is from a NY job.