State Tax - Resident of VA, Taxed in NY


R

Ritin Dhawan

Hi All,

I work for a company based and registered in NY State. I
used to live in NY till 2002 but for personal reasons I had
to move to VA and my company agreed on me working from home.
I have been living in VA since Jan-01-2003 so I submitted my
new W-4 to get my address updated on payroll.

As my job is actually based in NY my employer & ADP
continued deducting NY state tax from my salary. Now the
thing is that I have received my W-2 with VA address but NY
taxes paid.

So my question here is which state am I liable to pay taxes
for. For how many states do I have to file my return? Will I
have to pay taxes to both states? If I need to file a NY
state return then can I file it with VA address? Etc.

Any help/suggestion/guidance will be highly appreciates.

Thanx,
Ritin
 
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B

Benjamin Yazersky CPA

Ritin Dhawan said:
I work for a company based and registered in NY State. I
used to live in NY till 2002 but for personal reasons I had
to move to VA and my company agreed on me working from home.
I have been living in VA since Jan-01-2003 so I submitted my
new W-4 to get my address updated on payroll.

As my job is actually based in NY my employer & ADP
continued deducting NY state tax from my salary. Now the
thing is that I have received my W-2 with VA address but NY
taxes paid.

So my question here is which state am I liable to pay taxes
for. For how many states do I have to file my return? Will I
have to pay taxes to both states? If I need to file a NY
state return then can I file it with VA address? Etc.
You are always subject to tax in your resident state.
NY however, can be problematic.

NY has audited individuals in your type of situation, taken
them to court and won, claiming that the employee worked at
home for the employee's convenience. Accordingly, NY has
collected income taxes based on this theory. (personally, I
think its wrong - but the courts seem to support NYS) You
may be able to get a credit on your resident state return
for taxes paid to the non resident state. Each state is
different and you need to check the rules for your
particular state. Ask your employer for a letter stating
that you work at home for the employer's convenience and
that they do not maintain an office or any desk space for
you in NY and that you are never required to be in NY for
any work realted purposes.

This NY issue may grow in complexity. I believe that there
may be new cases and cases still on appeal. You may want to
seek professional advice on how to proceed.
 
K

Katie Jaques

I work for a company based and registered in NY State. I
used to live in NY till 2002 but for personal reasons I had
to move to VA and my company agreed on me working from home.
I have been living in VA since Jan-01-2003 so I submitted my
new W-4 to get my address updated on payroll.

As my job is actually based in NY my employer & ADP
continued deducting NY state tax from my salary. Now the
thing is that I have received my W-2 with VA address but NY
taxes paid.

So my question here is which state am I liable to pay taxes
for. For how many states do I have to file my return? Will I
have to pay taxes to both states? If I need to file a NY
state return then can I file it with VA address? Etc.
New York has a peculiar sourcing rule that has recently been
upheld by the highest court in that state. If you work for
a New York employer and you spend ANY time at all during the
taxable year at the employer's New York location, then ALL
of your compensation for services performed at your
out-of-state home is NY source income.

If you NEVER visited your employer's New York location at
any time during 2003, you have no NY source income from your
employment and should file a nonresident return with NY
claiming a refund of all of the taxes withheld. Of course,
as a result of having had NY taxes withheld, you will be
under-withheld for VA and may be subject to penalties for
underpayment of estimated taxes.

If you spent any time working in NY during 2003, then all of
your compensation is NY source income unless you worked out
of your home out of necessity (i.e., because you were doing
something that physically could not be done anywhere else)
and not for the convenience of either you or your employer.
It's really hard to meet that test. So you would file a
nonresident return with NY reporting all of your
compensation as NY source income and claiming credit for the
taxes your employer withheld.

Without checking the VA statute, I can't tell you whether VA
will allow you credit for the taxes you pay to NY on income
from personal services that were performed at your VA home.
Some states will; others won't.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 
F

Frank S. Duke, Jr.

I work for a company based and registered in NY State. I
used to live in NY till 2002 but for personal reasons I had
to move to VA and my company agreed on me working from home.
I have been living in VA since Jan-01-2003 so I submitted my
new W-4 to get my address updated on payroll.

As my job is actually based in NY my employer & ADP
continued deducting NY state tax from my salary.
That was a mistake that will cause you some grief. You need
to insist that they withhold VA tax for you and stop with
NY.
Now the
thing is that I have received my W-2 with VA address but NY
taxes paid.

So my question here is which state am I liable to pay taxes
for.
VA.

For how many states do I have to file my return?
NY to get a refund because you don't live there and VA to
pay the tax that is due. VA will see you as under withheld
and may penalize you. They will not care that you have paid
NY.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA
 
B

Benjamin Yazersky CPA

If you NEVER visited your employer's New York location at
any time during 2003, you have no NY source income from your
employment and should file a nonresident return with NY
claiming a refund of all of the taxes withheld. Of course,
as a result of having had NY taxes withheld, you will be
under-withheld for VA and may be subject to penalties for
underpayment of estimated taxes.
Not so fast...
I see NY potentially subjecting the taxpayer to NY in the
above scenario under their "convenience of the employee"
rule. All NY needs is an in-state based employer.
 
S

Seth Breidbart

Katie Jaques said:
New York has a peculiar sourcing rule that has recently been
upheld by the highest court in that state. If you work for
a New York employer and you spend ANY time at all during the
taxable year at the employer's New York location, then ALL
of your compensation for services performed at your
out-of-state home is NY source income.
What if it is performed at a third location?

Say, at a client's site (in a third state)?

Or, if the employee's home is in a low- or no-income-tax
state, it might be cheaper for the employee to rent an
office nearby and work there rather than pay New York's
taxes.

Seth
 
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B

Benjamin Yazersky CPA

What if it is performed at a third location?

Say, at a client's site (in a third state)?

Or, if the employee's home is in a low- or no-income-tax
state, it might be cheaper for the employee to rent an
office nearby and work there rather than pay New York's
taxes.
NY's attitude is you wanna litigate the matter or pay up. If
ya litigate, you're probably gonna lose. The state aint
lost yet - even on appeal.
 
K

Katie Jaques

If you NEVER visited your employer's New York location at
Not so fast...
I see NY potentially subjecting the taxpayer to NY in the
above scenario under their "convenience of the employee"
rule. All NY needs is an in-state based employer.
Well, Ben, I'm just going by the regulation as she is writ
<G> ...

20 NYCRR Sec. 132.4(b)

The New York adjusted gross income of a nonresident
individual rendering personal services as an employee
includes the compensation for personal services entering
into his Federal adjusted gross income, but only if, and to
the extent that, his services were rendered within New York
State. Compensation for personal services rendered by a
nonresident individual wholly without New York State is not
included in his New York adjusted gross income, regardless
of the fact that payment may be made from a point within New
York State or that the employer is a resident individual,
partnership or corporation. Where the personal services are
performed within and without New York State, the portion of
the compensation attributable to the services performed
within New York State must be determined in accordance with
sections 132.16 through 132.18 of this Part.

(Rev. eff. 1-29-92, revised references.)

I don't disagree with you that NY could take the position
that services performed 100% outside NY for a NY employer
produce NY source income. But they'd have to change the
regulation.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 
K

Katie Jaques

What if it is performed at a third location?

Say, at a client's site (in a third state)?

Or, if the employee's home is in a low- or no-income-tax
state, it might be cheaper for the employee to rent an
office nearby and work there rather than pay New York's
taxes.
Here's the language of the regulation in question (20 NYCRR
Sec. 132.18(b)):

If a nonresident employee (including corporate officers, but
excluding employees provided for in section 132.17 of this
Part) 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. The items of gain, loss
and deduction (other than deductions entering into the New
York itemized deduction) of the employee attributable to his
employment, derived from or connected with New York State
sources, are similarly determined. 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.

**********

As you can see, the regulation doesn't specify services
performed at the employee's out-of-state residence; any
services performed out of state are subject to the
"necessity" test. However, if an issue involving services
performed at a client's out-of-state location, or an
out-of-state office of the employer, has ever arisen under
this regulation and risen to the level of a published
decision, I haven't seen it. Doesn't mean it hasn't
happened. But it's a lot easier to make the "necessity"
argument if you're at the client's location or at your
employer's office in your home state.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 
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S

Seth Breidbart

Katie Jaques said:
Here's the language of the regulation in question (20 NYCRR
Sec. 132.18(b)): .. . .
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.

**********

But it's a lot easier to make the "necessity"
argument if you're at the client's location or at your
employer's office in your home state.
Depending on the job, I could make a "necessity" argument
even for working at home.

For instance, a computer programmer who works for a
financial institution and is on-call whenever they need him
(if he's available). Problem happens; company calls.
Employee can work from home and fix the problem in 5
minutes, or travel to the office in New York in which case
the problem won't get fixed for 4 hours. I'd claim that
avoiding the delay constitutes "necessity".

Seth
 

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