Two States - Unequal Results from TT

[mgallagher3555]

I posted in this in 'getting your taxes done' too, but here it goes again...

We are filing joint and my wife works for a NY employer - remotely. Full time remote. We live in MI. Her employer sent state taxes to NY and none to MI. We make about the same and had about  the same taken out for states. But TT says we owe $660 more in NY while MI owes us about $800 as a refund. How can this be? My first searches suggested that NY would credit MI because I'm pretty sure we owe MI for her income too - and none of mine should go to NY.  TT asked the right questions about residency but seems to be making some kind of false assumption.

I'd appreciate any insight on this one.

Thanks. Mike

[AmyC]

Since the employer took out NY wages, you will be filing a NY non-resident return. If the income is NY sourced, then you would pay taxes on the NY income. That amount withheld versus the tax liability, it could go balance due or refund.

You want to do NY first. Your resident state taxes all income but gives a credit for income taxed by another state.   This does increase any refund.

You will need to prepare the states in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident NY return. This creates your tax liability for the non-resident state. How do I file a nonresident state return?
2. THEN prepare your resident state return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

[mgallagher3555]

Thanks Amy,

That's key advise about starting with NY (non-resident). I actually think I did that because I see the credit on my MI return. Random Luck I guess. It's still add to me because my wife's employer keeps track of the # of days spent in NY at the home office (zero for 2020) because of tax implications. They signaled that unless she spent time in NY there would be no tax, but that doesn't seem right. I wonder how it would change if she had traveled to NY for some number of days.

Do you have any insight on that?

Thanks - Mike

[DianeW777]

You are correct.  If you wife spent no time physically working in New York (NY) in 2020, then no wages should be taxed to NY. Because of this, there should be no credit for taxes paid to another state on your resident state, Michigan (MI), return.

Instead you should report all income on the MI return, and zero income on the NY return.  This can be accomplished by entering zero wages for NY on the W-2 that belongs to your wife. Leave the NY withholding, then enter all the wages on the MI return.

This will complete the returns accurately and all NY withholding should be refunded, while it's likely you will owe on the MI return.

[mgallagher3555]

Thanks Diane,

That more of the answer I was hoping for. When you say enter zero on our W2 do you mean to do that in Turbo Tax? I wonder how I would do that. The W2 that arrived in the mail came from NY so I can't change anything about that. 

I actually called the NY  State Taxation Department this morning and while I did not get a crystal clear answer,  the person I talked to  suggested I used a IT 203B form to show the number of days in NY and an IT 203C for % of our joint gross (though that seems to be accounted for on the IT 203). 

I wonder if I enter our $$ differently in Turbo Tax that it would kick out those forms. As it was, it never asked me for # of Days. I'm not yet filing because I'm not convinced this is correct.

Also, he seem to assume I would owe tax.

Thanks, Mike

[TomD8]

@mgallagher3555 wrote:   "They signaled that unless she spent time in NY there would be no tax, but that doesn't seem right."

New York taxes non-resident remote workers according to the "convenience of the employer" rule.  That means that the earnings of a non-resident remote worker are entirely taxable by the State of New York unless the worker is required by the employer to work remotely and is assigned to a bona fide office of the employer located in the worker's state.

A remote worker's home can qualify as a bona fide office if it meets certain criteria.

You can read the details of New York's policy here:

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

[mgallagher3555]

Thanks Tom,

That view counters Diane's but is consistent with the way the NY tax person seem to think. I was aware of  the 2006 document you shared, but thanks for sending it.  Depending how we interpret the secondary criteria we could meet 4, but I'm not entirely confident the state would interpret it the way I would prefer to.

The NY tax person said to look at this document about New York Sourced income.

https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/pit/ny_source_income_nonresident.htm

It seem to imply through this line that my wife's income is "NY Sourced" but the language is weird..

• any income you received related to a business, trade, profession, or occupation previously carried on in New York State, including but not limited to covenants not to compete and termination agreements (see TSB-M-10(9)I, Income Received by a Nonresident Related to a Business, Trade, Profession, or Occupation Previously Carried on Within New York State);

She works for an entity associated with the University of Buffalo so it's not technically a business. You could call it a profession but she didn't carry on the work "previous' to be being employed there, so what  does that phrase (profession or occupation previously carried on..) supposed to mean? The phrase seems to try pertain to people who were once in NY doing some business and then continued in another state.

Am I over thinking this? Just wish these doc where crystal clear.

Mike

[TomD8]

I researched this further and found this court case from 1978, which would seem to say that, since your wife's work was 100% performed in Michigan, it is not taxable by NY:

In the Matter of Arthur Hull Hayes v State Tax Commn, 61 AD2d 62 [1978], the petitioner was a nonresident working as a consultant for a New York based company under an agreement which allowed him to work at home. The court held that since the petitioner performed no services in New York for the income in question and did not maintain an office or place of business in New York, the income was not received from a source in New York. The court stated that “A nonresident who works in another state but who performs no work in
New York is not subject to New York State tax liability no matter for whose convenience or necessity he performs the work.”

From page 7, TSB-A-05(2)I:4/05:Robert M. Braun,Petition No. I040414A,tsba052i (ny.gov)

Hayes v. State Tax Comm, 61 A.D.2d 62 | Casetext Search + Citator

It would seem from this that NY's "convenience of the employer" rule would apply only to workers who perform at least part of their work (in a given tax year) both within and without NY.  Caveat: I am neither an accountant nor a tax attorney.

[mgallagher3555]

Thank you Tom.

Is there a way of answering some question for Turbo Tax that would get it to conclude not tax were due? Perhaps it would involved completing form IT 203-B which accounts for #'s of days in NY.

thanks,  Mike

[TomD8]

If you choose to treat your wife's income as non-taxable by New York State, you would allocate zero income to NY when you do her non-resident NY return.  TT will allow you to do this.  Doing this will result in your being refunded the NY taxes that her employer withheld.

You might consider printing and mailing your NY return, along with a note explaining the discrepancy between her W-2 and her NY return.    

I reviewed that 2006 New York State memo.  The first paragraph contains this sentence:

"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." 

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

[Hal_Al]

@mgallagher3555 

This topic continues to be confusing. See the latest discussion at https://ttlc.intuit.com/community/state-taxes/discussion/re-i-work-for-a-ny-company-remotely-from-nc...

Can you provide any insight based on how you actually filed and whether NY accepted your filing?