My job is based in New York City but I have been working remotely in Los Angeles for all of 2021. In May my employer agreed that I could work from home permanently from Los Angeles. We do not have an office in LA currently but there may be one in future years.
I'm looking for advice on how to file my 2021 state taxes. Given that New York State is taxing telecommuters should I be filing a California resident tax return for 12/12 months and then a New York non-resident tax return for 12/12 months? Since most of my income will be New York sourced I assume I would have a large tax credit for the NY portion so as not to be double taxed?
New York has a very aggressive telecommuting law that considers you to be a nonresident worker in their state if the company for whom you are telecommuting is located in their state. Their legal justification for doing so is called the convenience of the employer test. Take, for example the following excerpt from this New York State memo regarding telecommuting taxation (click on link for full memo in pdf format):
“If a nonresident employee . . . performs services for his employer both within and without New York State, his income derived from New York State sources includes that proportion of his total compensation for services rendered as an employee which the total number of working days employed within New York State bears to the total number of working days employed both within and without New York State… . However, any allowance claimed for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of his employer. [The convenience of the employer test.] In making the allocation provided for in this section, no account is taken of nonworking days, including Saturdays, Sundays, holidays, days of absence because of illness or personal injury, vacation, or leave with or without pay.”
What that means for a telecommuter is: the job he/she is doing for the company could be performed at the company’s place of business inside of the state. Since working at home outside of NYS is a convenience for you and the employer, but not a necessity, NY has the right to tax your income. Thus, you will need to file a nonresident return for NY (even though you only worked physically one day there). If you are filing a resident return for the state where you live, you will be given a credit for the amount of tax you must pay on this telecommuting income to the other state.