NYS BEGINS AUDITS OF REMOTE EMPLOYEES’ INCOME TAX RETURNS

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Bloomberg Law / Daily Tax Report reports that New York Officials have already started auditing 2020 returns for teleworkers, which is a little surprising as we are still in a middle of a pandemic and the tax season is still underway. As noted in our previous alert, NYS’s position is that teleworking days are treated as time working in the state, therefore they are still taxed in NYS unless, in general, the employer has a bona fide office in the other state. This is based on 2006 legislation/guidance. This is not without controversy, and we are aware of challenges.

TSBM-06-(5)I provides in part:

For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below). Any day spent at the home office that is not a normal work day would be considered a nonworking day. A normal work day means any day that the taxpayer performed the usual duties of his or her job. For this purpose, responding to occasional phone calls or emails, reading professional journals or being available if needed does not constitute performing the usual duties of his or her job.

This guidance provides a multi-prong test in order to determine whether there is a bona fide employer office. Most commuters would not meet this test. A copy of the guidance is attached.

 Audits are stressful but we are here to help. Please do not hesitate to contact us should you need assistance.

NYS NON-RESIDENT TELECOMMUTERS - NYS INCOME TAX

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One question we received recently is whether an employee of a NYS business who lives in NJ is still subject to NYS income taxes even if due to the pandemic they telecommute.

NYS previously provided guidance on this issue, which provides as follows:

My primary office is inside New York State, but I am telecommuting from outside of the state due to the COVID-19 pandemic. Do I owe New York taxes on the income I earn while telecommuting?

If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.[1]

They also cite TSB-M-06(5)I, which goes into more detail of the “convenience of the employer” test. Therefore, NYS continues to tax this income and employers should continue to withhold. However, we are aware of New York Senate Bill S.8386 and litigation (New Hampshire v. Massachusetts, No. 22O154 (U.S. filed Oct. 19, 2020)) which may affect this issue. Stay tuned. 

 Please do not hesitate to contact us with any questions.

[1]           https://www.tax.ny.gov/pit/file/nonresident-faqs.htm#telecommuting