The pandemic changed the way we work. Many people who commute into big cities like New York were forced to work from home, often in other states and often for the majority of the year. This led to a lot of frustrations, like trying to find space for a home office and a way to conduct meetings without the interruption of well-meaning family members. But it came with some advantages, too. This could include the time saved from skipping the commute and money saved on state tax bills.
Afterall, if we worked in New Jersey or another state for the majority of the year we should not have to pay New York’s astronomically high state income tax, right?
Unfortunately, this does not seem to be the case. New York state taxing authorities recently sent out thousands of notices to taxpayers asking questions about their 2020 tax returns. These questions included requests for information about their income and residency status. What is even more surprising is who is getting these letters. In the past, the taxing authority generally sent these types of notices to those who claim $1 million or more in annual income. This time around, the letters appear to go to anyone who claims $100,000 or more.
Can New York really expect a state income tax if I worked primarily in another state?
If your employer was located in New York, it is likely state taxing authorities will send a state income tax bill. Unfortunately, a recent ruling in the Supreme Court has given the state motive to seek these tax payments. The case involved a taxpayer from New Hampshire that fought back after Massachusetts’ tax authorities claimed state taxes were due even though he worked remotely. Since his office was physically in Massachusetts, the state argued he still owed state income taxes. The Supreme Court agreed with the state taxing authorities.
What happens if I do not respond?
The agency could bill you with additional fees and penalties and move forward with the audit anyway.
Do I have any other option?
Just because the top court in the nation gave New York the incentive to come after state income taxes for those working remotely does not mean it will always work. There are instances when the taxpayer is truly located in another state for tax purposes. One way this is achieved is when the taxpayer establishes their domicile in a different state.
Factors that influence domicile include relatively straight forward things like how much time the taxpayer spends in the state as well as more personal things like where we keep our family pets or heirlooms. The attorneys at Goldburd McCone are familiar with these types of issues and can provide guidance for those trying to navigate this type of an audit.