i moved to NY in 2022 and did not live or work in DE in 2023. Since my employer withheld my taxes in 2023 for DE, I submitted a non resident DE state tax return for 2023 with 0 income expecting a refund of my taxes. The DE state rev team has sent me back a notice of proposed adjustment and have not accepted the earlier submission. i have 60 days to respond to the NOPA and my 2023 returns were filed using Turbo Tax assisted service. What are my options?
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Is your employer still in Delaware? That could be the source of the confusion.
Delaware has the "convenience-of-the-employer rule," which asserts that if Delaware employees are working outside the state for their own convenience, and not for the necessity of the employer, those wages are sourced to Delaware for income tax purposes.
Please see "Delaware Division of Revenue issues guidance"
This rule was modified during the pandemic, allowing workers who worked from hone by direction of the employer to be treated as out-of-state workers.
I do not know what the state is thinking - 2023 should have been under the pandemic rules, unless they issued some additional directives that I am not aware of.
You should reply to their notice and ask them under what rule would you be taxable.
It's possible that you will be treated as a telecommuter worker - working for a Delaware company while not living in Delaware, but not living at an out-of-state location at the direction of your company.
thank you for responding. Yes, my employer has employees in multiple states including DE and NY. I called the DE Revenue number on my notice and they told me that the adjustment was done by the DE auditor because my W2 had DE withholding. When I moved in mid of 2022 to NY, i was a fulltime NY employee and also NY resident and did not do any remote work for DE. After speaking to my HR team i was told that they will not issue me a new W2 and the reason they withheld taxes is because some part of my bonus that was awarded in 2020(when i was working in DE) was vested in 2023 and that is why that portion is getting shown on the 2023 W2 as DE income. Is this the expected treatment of vested income and does it matter which year it was awarded? i am not sure if i can appeal the notice and get my refund back.
Yes, the income source was DE when it vested so DE can tax the income because it is from DE source. The year that matters is when the income was earned to produce the later effect. We see these issues with some states and retirement plans. We see it with employee stocks sold years after the employee has left the company.
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