I lost my job due to COVID ion 2020 but I was fortunate enough to receive some severance pay. However I do not know how to allocate this on my state returns. Here is my situation . . .
I lived in NJ for 100% of 2020
My company HQ was in RI but I worked out of a satellite office in NY.
I was made redundant and stopped receiving my salary in April 2020
I started receiving severance pay in June 2020
I did not spend a single day in NY in 2020
My W2 withholdings were for NY
for 2019 I filed both NY and NJ state returns with 100% income allocation to NY but NJ resident
For 2020 I will will also allocate my income while employed (Jan-April) to NY but can I allocate the severance portion of my earnings (June onwards) to NJ and not NY given that I was no longer employed and did not perform any duties in NY or enter NY while receiving this income?
Allocating the severance portion to to NJ reduces my tax burden.
In your situation, you will have to file a nonresident New York return because income taxes were withheld from your wages. However, since you never performed services in New York (and it was not due to Covid-19), then it would seem that all of your wages and severance are New Jersey income sources.
Nonresidents are only liable for state tax on New York source income. Even though your satellite office is in New York, if you don't actually perform services in New York, then it not New York source income. There are different rules in New York for telecommuting due to Covid-19, however, this does not seem to be the case as you were let go in April 2020.
You stated that you never went to New York in 2020. Did you perform services in New York in 2019 and that is why you filed a nonresident return for the prior year?
Per New York State, New York adjusted gross income of a nonresident individual rendering personal services as an employee includes the compensation for personal services entering into his Federal adjusted gross income, but only if, and to the extent that, his services were rendered within New York State. Compensation for personal services rendered by a nonresident individual wholly without New York State is not included in his New York adjusted gross income, regardless of the fact that payment may be made from a point within New York State or that the employer is a resident individual, partnership or corporation.
Perhaps a little clarity. I was originally hired to work out of NY City and have filled 100% of my income there every year since 2015. However, over time I transitioned to a work from home model. In 2019 I filled all my income as earned in NY because I was commuting in 3 days a week and the other 2 were more convenience.
However, by 2020 I have stopped commuting in and worked everyday from home - Pre COVID19 decision. In April 2020 I was made redundant and started claiming NY Unemployment because thats where I had been filing my state taxes.
Therefore I believe I do need to allocate the portion of my earnings from my employment through end of March plus my unemployment income from NY as 100% NY income. However, When I received my severance in June it was not tied to any duties I had to perform in NY and I no longer spent anytime in NY so I wanted to allocate this portion to NJ where I live.
This will reduce my state tax by a little but I do not want to do this if it will possibly raise a red flag or is a grey area, only if its clearly the right way of reporting. Especially as I am now dependent on NY unemployment.
Beginning in 2020, you have no taxable earnings in New York (NY) State . In other words you did not physically work inside of NY at all in 2020 based on your comments above. All income should be taxed to New Jersey (NJ), where you live and worked from. Do not include any W-2 earnings on the NY return.
New York City may be a different matter. I can provide the link for their site, but will not have specifics for those rules. NY City Taxes
The unemployment tax was paid and filed with NY because that is where you employer was situated geographically and they may not have been required to register as a NJ employer.
For the unemployment you received from NY sources as a nonresident follow these instructions.
- New York State amount column: Enter that part of the federal amount that represents taxable unemployment compensation received as a nonresident resulting from employment in New York State. If the unemployment compensation received from New York State sources is based on wage or salary income earned partly in and partly out of New York State, determine the amount allocable to New York State in the same manner as the wage and salary income on which it is based.
- Instructions for NY Form IT-203
When you file the nonresident return for NY, enter the amount that should be taxed to NY in the state interview. There will be a screen after selecting your nonresident status to allocate the appropriate income. Be sure to complete the NY return first, then do your resident return for NJ.
Your resident state will allow a credit for taxes paid to another state on the same income. All unemployment income will be taxed to NJ because as your resident state they will require all worldwide income to be reported. The credit will be the lesser of the amount of tax liability actually charged by NY or the tax that NJ would charge on the same income.