Solved

Recovering taxes withheld by wrong state (NY)

Forum|Forum|5 years ago
May 16, 2021
1 reply
0 views

We lived in Chicago all of 2020, but my husband works remotely for a company in Brooklyn, NY. My understanding is they should have taken out Illinois taxes but took out NY taxes by mistake. As a result, we listed our income as $0 on the non-resident form to get the full amount paid back from NY (based on the instructions of this board: https://ttlc.intuit.com/community/state-taxes/help/do-i-need-to-file-a-nonresident-return-for-an-out-of-state-employer/00/26552)

However, we got the following warning from Turbo Tax e-file: "Allocation Worksheet for PY/NR: Wages, Salaries, Etc, Col D New York wages were reported on the Federal W-2 but no wage income has been allocated to New York. This will cause the e-filed return to be rejected by New York state. Am I missing something?

Best answer by BillM223

Yes, what you are missing is that New York State taxes telecommuters, even if the employee has never set foot in New York.

The TurboTax Help article is correct for most states, but not for New York. Fortunately, the e-file process caught this.

What you will do is file a nonresident return for NY. All the income from New York sources (in your case the work your husband did for a Brooklyn company remotely) will be taxed in NY and the NY withholding applied to it.

Then do your IL resident return. Schedule CR will probably be attached, reporting the tax paid to New York. Then this amount will flow to Line 15 (Income tax paid to another state while an Illinois resident. Attach Schedule CR) on your IL-1040.

The NY tax may cover your IL tax so that you don't owe anything to IL. This is how most states act to prevent the double-taxation of income - your variant is that NY doesn't act like any other state (except California)...

B

BillM223Answer

Yes, what you are missing is that New York State taxes telecommuters, even if the employee has never set foot in New York.

The TurboTax Help article is correct for most states, but not for New York. Fortunately, the e-file process caught this.

What you will do is file a nonresident return for NY. All the income from New York sources (in your case the work your husband did for a Brooklyn company remotely) will be taxed in NY and the NY withholding applied to it.

Then do your IL resident return. Schedule CR will probably be attached, reporting the tax paid to New York. Then this amount will flow to Line 15 (Income tax paid to another state while an Illinois resident. Attach Schedule CR) on your IL-1040.

The NY tax may cover your IL tax so that you don't owe anything to IL. This is how most states act to prevent the double-taxation of income - your variant is that NY doesn't act like any other state (except California)...

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

Hal_Al

Employee

Confirming what BillM223 said, no matter where you worked, New York considers the income from working remotely for a New York employer to be New York income.

If you work outside the state as a 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, you are subject to New York State income tax on all your income.

For others reading this 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