New York Convenience of Employer Rule

[sadcoffee23]

I moved from NY to FL in 2021 but continued working remotely for my NY-based employer. I'm filing my 2022 tax return and received a W2 from my NY employer. The W2 does not have NY state wages or taxes withheld, but it does have NY city wages and withholding. I originally thought I could file a NY nonresident return to get the city taxes back. However, I just learned about the convenience of employer rule. I'm now wondering if I have to pay NY state taxes on all of those wages even though no NY wages are listed on my W2 and no state taxes were withheld. I did visit NY for meetings in 2022 and don't think I meet the convenience of employer tests. 

[rjs]

You first have to determine whether you are working in Florida for your own convenience or for the "convenience of the employer." I don't understand what you mean by "don't think I meet the convenience of employer tests." Are you working in Florida because you prefer to live there, or are you there because your employer needs someone in Florida, or requires you to work remotely? The answer to this question will determine how much of your income is subject to New York tax.

But your W-2 is a mess. It's impossible to have New York City wages without any New York state wages. Any income that you earn in New York City is also New York state income. But worse than that, nonresidents do not pay New York City tax at all, period. The convenience of the employer rule doesn't matter as far as the city tax is concerned, because nonresidents are not subject to New York City tax under any circumstances. No city tax should have been withheld. I'm not sure what you do about this. I think the ideal solution would be for the employer to give you a corrected W-2 or a W-2c removing the entries in boxes 18 through 20, and give you a refund of the city tax that they improperly withheld.

[sadcoffee23]

I meant that I’m working in FL for my own convenience not my employer’s convenience based on the tests. Sorry that was confusing. I knew I shouldn’t have to pay NY city tax but did not realize I may still need to pay NY state tax. It’s strange that state wages weren’t on my W2. 

[rjs]

Since you are working in Florida for your own convenience, and you sometimes went to the New York office, you have to pay New York state tax on all of your wages. New York treats it as if you actually worked in New York State.

If you lived in a state that has state income tax, double taxation would be a concern. But since Florida has no state income tax, you don't have to worry about it.

It is indeed strange, and wrong, that your W-2 doesn't show any state wages. You can probably file your New York nonresident return by entering your W-2 with the information that should be in boxes 15, 16, and 17, even though it's not actually there. In box 15 select NY as the state. For the employer's state ID enter the federal tax ID, but without the hyphen. In box 16 enter the same amount that's in box 1. Leave box 17 empty or enter zero.

It looks like TurboTax will solve the New York City problem for you. Enter the local information in boxes 18 through 20 as they appear on your W-2. The city tax withheld will effectively be credited towards your state tax, because the New York return just adds the state and city withholding together. When the New York interview asks about your city residency, select Nonresident. You will get a screen pointing out that you have New York City withholding but you said you were not a resident of the city. Just click Continue.

Not having had any New York state tax withheld is going to cause you to have a big payment due to New York, plus a penalty for not having had enough withheld during the year. I assume that the city withholding is not nearly enough to cover the state tax. For this year, 2023, you need to tell your employer to start withholding New York state tax, stop reporting city wages, and stop withholding city tax. You might want to make estimated tax payments to New York, or temporarily increase the New York withholding, to make up for not having had any New York state tax withheld for the first half of this year.

Since your W-2 shows New York City wages, but your tax return will not have any New York City tax, you might get a notice from the city or the state saying that you have to pay city tax. You will have to explain that it was a mistake, and that you were a nonresident of the city for the entire year.