I am a New York resident working for Connecticut company. Do I have to pay taxes to both NY and Connecticut?

[motamedi79]

In 01/17 I was a resident of New York and in 06/17 I changed my job from a NY company to a Connecticut company. On 08/17 I moved to Connecticut and changed my residency. During the two month overlap (from 06/17 to 08/17), I was NY resident with a CT job. How do I avoid paying double taxes in Turbo Tax. 

How do I tell NY that I already paid the CT state tax during the two month overlap.

[DanielV01]

You are double-taxed on the overlap.  New York does not exempt this income from NY tax.  What NY will do is issue you a tax credit for the amount of tax you pay to Connecticut for the income you earned in CT while still living in NY.  

If TurboTax does not calculate the amount for you automatically (it may be difficult for the program to do so given the situation), you will need to determine the amount of income you earned in the overlap before moving to CT.  Then, prorate the amount of CT tax to the percentage of the CT income that is the double-taxed income.  To determine this, divide the CT income earned while still living in NY by the amount of overall income reported to CT.  Then, multiply this percentage by the difference of the amount of CT tax withheld minus the CT refund or the CT additional tax plus the additional amount due.  To illustrate:

Suppose the amount you earned in CT for the remaining portion of the year was 25,000, and the 2-month period was 5,000.  The double-taxed income was 20% of your CT income (5,000/25,000).  Now, let's say that on the 25,000, you had 1200 withheld and a 200 refund.  You would multiply 20% (the double-tax percentage) by the net tax of 1000 (1200 minus the 200 refund).  Your CT income would be 5,000, and the tax on the 5,000 is 200.  In this hypothetical scenario, these would be the numbers you would enter on the New York part-year resident return for "Taxes Paid to Another State".  But NY will not exempt that income from NY tax.

[Josephciv]

Hi Tax expert,

do you have more information on the tax credit? I am an NY resident now beginning to work for a CT based company. I do not foresee moving to CT anytime soon, so would like to understand what is available to me if anything.

Kind regards & thanks! 

[TomD8]

@Josephciv --

CT can tax you as a non-resident only on CT-source income.  Work income is "sourced" where you actually (physically) perform the work.  Therefore if you never physically work within CT, your work income will not be subject to CT income tax.  In this situation you would ask your employer to withhold NY taxes only.  (If your services are performed entirely outside CT, CT law does not require your employer to withhold CT taxes.)

As a resident of NY, all your income is taxable by NY, regardless of its source.

[Josephciv]

Thanks! However I will be working in Connecticut for a couple days a week, and remote the rest. I wanted to ascertain if there are any tax credits available in these situations or if there are no options in terms of tax credits at the end of the year.

[TomD8]

The portion of your income that you earn by physically working in CT is taxable by CT, as well as by your home state of NY.  

At year's end you'll file a non-resident CT tax return on which you report your income earned in CT, and you'll file your usual NY home state return on which you report all your income, including your income earned in CT.

You'll be able to claim a credit on your NY return for the taxes you pay to CT, so you won't be double taxed.

In TurboTax, be sure to complete the non-resident state return before you do the home state return, so that the program can correctly calculate and apply the credit.

[isaacamick]

Hi @TomD8 ,

I am a NY resident and worked remotely (from NY) for a CT company for most of 2022. However, my employer set up my payroll such that my state withholdings were going 100% to CT and 0% to NY.

After following your other helpful advice I have gotten TurboTax to understand that CT withheld more state tax to CT than I owe to NY, but it still says that I'll owe an underpayment penalty for my NY state taxes. I'm assuming that's because $0 were withheld as far as NY is concerned. Do you know if there's a way around this penalty?

Thank you for your help!

[Cynthiad66]

You can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:

• 90% of the total tax after credits for the current year, or
• 100% of the total tax after credits in the prior year

You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments payments you made are timely.

For more information click this link.

@isaacamick

[TomD8]

@isaacamick --

Here are NY's appeal instructions:

https://www.tax.ny.gov/tra/disagree.htm

Looks like you can't file an appeal until you receive a notice from NY that you're being assessed a penalty.  The notice (if you get one) should contain appeal instructions.  Then you can tell them exactly what happened.