Employer located in NYC, company now working virtually, temporary move to Chicago during quarantine is now permanent - help!

Forum|Forum|5 years ago
October 29, 2020
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In a nutshell, I would like to know how easy (or difficult) it is to operate in the state of IL. My company currently operates in NYC and Israel (TLV), however we are working virtually because of COVID.

My move to Chicago was originally for 3-4 weeks, unfortunately, due to unforeseen circumstances, we will not be moving back to NY. My employer offered to make me a '1099' contract employee, in order to keep me on as a consultant, but this is not ideal.

I would love to discuss if me working virtually from Chicago right now creates a Nexus for my employer? New York is still the state where I am being taxed, while I reside in Illinois - this is also not ideal, and I am wondering what options (other than finding a new job in IL) I have?

Not A Product Question

Hal_Al

Employee

You are now an IL resident and all income earned, as a resident, regardless of where earned, is subject to IL income tax.

The general rule is: your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. So, there will be little or no double taxation.

For 2020, you will file as a part year resident for both states. In TurboTax, do the nonresident (NY) state return first.

For future years, you will have to file a non resident NY state return and pay NY tax on the income earned there.. You will also file a IL full year resident return and calculate tax on ALL your income. IL will give you a credit, or partial credit, for the tax you pay NY. Do the nonresident state return first.

It actually makes a difference whether you continue as a W-2 employee or become a 1099-Misc contractor.

If you work outside the state as a W-2 job requirement, you are only subject to New York State income tax on the days you work in New York. But if you work outside New York for your own convenience (telecommuting), you are subject to New York State income tax on all your income. Pennsylvania, Nebraska, Delaware and New Jersey have the same rule. For guidance see: http://www.journalofaccountancy.com/issues/2009/jun/20091371.html

Here's a link to New York's memorandum on its "convenience of the employer" tax doctrine regarding non-resident telecommuters: https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

There is pending legislation that may make an exception for Covid19 situations.

As a 1099 contractor, you are only subject to NY tax on income physically earned there.

Under the regulations issued by the IRS, if you are working for a former employer as a contractor, doing substantially the same work that you did as an employee, you are ineligible for the Federal QBI deduction for 3 years after you stopped being an employee.