New York Non Resident Income Tax Revenue At Stake For States

The New York tax code says anyone who works out of an office in New York, but lives out of state, whether in Connecticut, Pennsylvania or New Jersey, must pay New York income tax. Make no mistake about it, New York strictly and aggressively enforces the tax code, even if the job is done predominately from a residence.

The only exception is when work from home is a “necessity,” which happens to be the case now with states imposing shelter-in-place legislation. The statute goes on to say: “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.” Of course, folks from out of state have tried their luck in court to get out of paying New York taxes and repeatedly failed, BUT never during a pandemic of this magnitude.

Will New York’s neighboring states continue to “play nice?” Typically, states are not good at coordinating tax policies, it is not unusual to have two states claim withholding on the same income.

Non-residents currently account for nearly a fifth of New York’s income tax revenue, almost $700 million a month. Those are tax dollars the state, which has more COVID-19 cases than any other, desperately needs. Governor Andrew Cuomo said New York is being hit by an “economic tsunami.” He has also said the state is “broke” and faces a $10 billion deficit.

New York’s neighbors have their own budget problems. New Jersey, has the second-most confirmed cases, and Pennsylvania has suffered some of the deepest job losses. Connecticut is short on reserves for unemployment benefits. So far, the states are being neighborly. New Jersey recently issued guidance that taxes will continue to be due to the state where the income is sourced. The Pennsylvania Department of Revenue, said it isn’t considering claiming the tax dollars earmarked for out-of-state employers, yet. Connecticut hasn’t responded yet.

New York is fiercely protective of its tax base, doesn’t have reciprocal tax agreements and is notorious for chasing dollars it believes it’s owed. Even from folks who move away and seek to change their domicile, read HERE.  You might actually be an employee at a New York-based company working in the Midwest who never sets foot in New York, but you will owe it taxes. Try to exclude even a portion of that income and expect an audit as a rule of thumb.

COVID-19 changes everything. For workers, the potential tax savings could swing hundreds or even thousands of dollars into their paycheck. Legal and Accounting tax experts advise that folks should have a clear case for allocating their income during the pandemic to their home state because of government-ordered closing and quarantine.

Don’t expect New York will make it any easier on out-of-state tax filers. During Superstorm Sandy, NY gave people more time to file, but didn’t change rules for non-residents forced to work from home. Professionals are hoping a mandate might be forthcoming, but don’t hold your breath.

For companies there could be headaches due to any change in the status quo. A shift in an employee’s tax home could create a “nexus,” or a tax presence in a state which would require businesses to file additional corporate taxes.

The Coronavirus pandemic is likely to prompt states to reexamine how they treat remote workers, because many of the factors recently brought to light have been issues prior to the pandemic that begged to be addressed.

Oh, and before we forget, regarding the home office deduction, whether you are:

1) Working from home through no fault of your own like Coronavirus;
2) You cannot physically return to the office or workplace due to Coronavirus; or
3) Your employer may be requiring you to telework during the pandemic -

You cannot deduct the cost of your internet, the ergonomic chair or second monitor you had to buy! As a result of the TCJA you cannot deduct home office expenses if you are an employee!! There is no hardship exemption or Coronavirus waiver. It only counts if you are self-employed or an independent contractor.

CONTACT US: When states are facing the worst fiscal crisis in decades every dollar counts, at a time like this the expertise of your Fuoco Group tax professionals becomes invaluable. New York will not be able to review every non-resident’s tax return to determine whether work outside the state was done out of necessity or convenience. That does not mean that you should not be compliant, but it does mean you should examine and weigh an opportunity if one exists. Reach out to us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .