Starting new job with office in New York City, but I work remotely from Kansas. What will my income tax withholding be?

[cth3md]

Trying to figure out how much will be taken out of my paycheck each month. 

I messaged the HR department of my new job and she said that I will just be paying Kansas state income tax, not New York. But they dont have any offices outside of New York, and everywhere online says I will be paying New York taxes. So I feel like she might be wrong.

Kansas has a 5% income tax, and NY has a 6%. Could I potentially have 11% of my paycheck withheld?

Second, will I be paying the local NYC tax? Or the Kansas?  

[rjs]

Since you are asking about withholding, I assume that you are a W-2 employee, not an independent contractor.

How you will be taxed depends on why you are working remotely (telecommuting). New York has a "convenience of the employer" rule. If you are working in Kansas because the employer wants to have an employee or representative in Kansas for business reasons, then you are working remotely for the employer's convenience. In that case, your income from the job is Kansas income, not New York income. You will pay only Kansas tax.

But if you are working remotely because you prefer to live in Kansas instead of New York, then you are working remotely for your own convenience, not the employer's convenience. In that case, New York treats you the same as if you actually worked in the New York office. The income is considered New York income and you would pay New York tax on it. Since you are a Kansas resident, all your income is subject to Kansas tax, no matter where the income is from. So you would also have to report the income on your Kansas tax return. But you should get a credit on your Kansas tax return for part of the tax that you pay to New York, to eliminate the double taxation. (I'm not familiar with Kansas taxes, but I assume the credit would be equal to the amount of the Kansas tax on your New York income, so you would still be paying the full New York tax, since the New York tax rate is higher.)

As far as withholding is concerned, if you are going to be paying Kansas tax, you want to have Kansas tax withheld from your pay, and the income should be reported as Kansas income on your W-2. If you are going to be paying New York tax, you want to have New York tax withheld from your pay, and the income should be reported as New York income on your W-2. If the employer has a Payroll department that is separate from HR, I strongly recommend that you discuss the withholding with Payroll, not HR. You are more likely to get accurate answers about withholding from Payroll.

Please note that New York income tax is not a flat rate. It has graduated rates in brackets, like the federal income tax. The rates range from 4% to 10.9%.

You should not have to pay New York City tax, and should not have any New York City tax withheld. Your W-2 should not show any New York City income. New York City income tax applies only to residents of New York City. Nonresidents of the city do not pay New York City income tax, even if they physically work in New York City.

[Opus 17]

HR is probably wrong. Here is the tax bulletin.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

Generally speaking, you will file a NY non-resident return to report your NY-source income only.  You will file a Kansas resident return to report all your worldwide income (your NY income plus anything else like dividends, interest and capital gains, gambling prizes, side hustle, and so on).  Kansas will give you a credit for taxes you pay to NY.  

NY tax rates are equal or higher than Kansas, sorry.  You should have NY tax withheld, not Kansas tax.  Then you would need to make quarterly estimated payments to the Kansas tax authority equal to 5% of your non-NY income, which is presumably fairly minor.  The alternative is to have Kansas tax withheld, and make quarterly payments to NY equal to 6.5% of your NY income.  But this method would mean you are paying about 11% in state tax up front, half of which would eventually come back to you as a large Kansas refund.   (You will pay the same net tax either way, having double withholding means less take home pay up front and a bigger refund at the back end.)

NYC has a separate income tax on top of NY state income tax, but even if the company is based in NYC, you only pay NYC income tax if you physically live or work in NYC.  However, this is something you will owe if, for example, you work for 2 weeks a year in NYC for training; or you fly out for in-person meetings 2 days a month; or something like that.

[rjs]

Opus 17 is assuming that you are working remotely by your own choice, not because your employer requires you to work remotely. But we have not established that. You have not provided any information one way or the other.

Employers are usually reluctant to withhold tax for a different state for just one employee. If the employer is offering to withhold Kansas tax, they may already have other employees in Kansas. They might have some sort of operations in Kansas, even if they don't have an office there.

You will not have to pay New York City income tax under any circumstances.

"Nonresidents of New York City are not liable for New York City personal income tax."

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

Years ago nonresidents of New York City who worked in the city had to pay city income tax. Through litigation and legislation it has been established that New York City cannot tax the income of nonresidents, even if they work in the city. This has been the case since 1999.

[Hal_Al]

Also, see this more recent discussion, wherein the poster says it requires at least 1 day in NY to be subject to NYS income tax, even when it's for your own convenience. 

https://ttlc.intuit.com/community/state-taxes/discussion/re-i-work-for-a-ny-company-remotely-from-nc...

[rjs]

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@Hal_Al wrote:

Also, see this more recent discussion, wherein the poster says it requires at least 1 day in NY to be subject to NYS income tax, even when it's for your own convenience. https://ttlc.intuit.com/community/state-taxes/discussion/re-i-work-for-a-ny-company-remotely-from-nc...

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I don't think that's true. The 2006 Department of Taxation and Finance document TSB-M-06(5)I that Opus 17 referenced above doesn't say anything about having to be in New York at least one day. The statement about having to be in New York one day is based on the Hayes decision, which was made in 1978. There were no telecommuters in 1978. Hayes was not telecommuting. Also, Hayes's situation was very unusual, and involved a written quid pro quo agreement with the employer. I would be very hesitant to try to apply a 44-year old court decision to a present-day situation with a very different set of facts, especially since the decision is not reflected in the much more recent TSB document. There could have been subsequent legislation or legal action over the last 44 years that changes the rules. I would not rely on the Hayes decision without getting expert legal advice.

[Hal_Al]

I think it's significant that the employer is not going to  withhold NYS tax ("I messaged the HR department of my new job and she said that I will just be paying Kansas state income tax, not New York").  

The NY Dept. of Taxation and Finance puts  pressure on employers to withhold NY income tax.

 

[TomD8]

I agree with @Hal_Al.  NYS Tax Memorandum TSB-M-06(5) specifically states:

"The memorandum addresses situations where a nonresident or part-year resident employee whose assigned or primary work location is in New York State performs services for an employer at that location and at a home office located outside of New York State."

TSB-M-06(5)I:(5/06):New York Tax Treatment of Nonresidents and Part-Year Residents Application of th...

Thus, if the employee performs no services at the New York location, the memorandum does not apply.

Also, in this case the employee's "assigned or primary work location" is clearly in Kansas, not in New York State.  The employer is withholding Kansas taxes only.

In my opinion @cth3md has no tax obligation to the state of New York, as long as he/she never works at a New York location.  Thus the employer is correct to withhold Kansas income tax only.