NJ & NY wage allocations

[minnow150]

I am looking to see if anyone has had a similar client and can offer guidance.  Here are the facts:

Taxpayer worked 20 years for Company - 16 in NJ, last 4 in NY.

Taxpayer accepted early retirement/severance in December 2019.

Final payment (severance/unused vacation and sick days, etc) of $120k was made in February 2020.

Taxpayer never worked in NY during 2020.

Taxpayer collected Unemployment benefits from New Jersey in 2020.

W-2 shows $120k in wages for NY and NJ.  State taxes were withheld for both states ($10k - $7k NJ, $3k NY)

I would like to put 100% of the wages into NJ, as the tax rates are lower there.  But I am worried that NY will want the income declared there.  (For 2019, 100% of W-2 wages  were taxed in NY)?

Any guidance on this case would be appreciated.

Michael Gilligan

[qbteachmt]

"Final payment (severance/unused vacation and sick days, etc) of $120k was made in February 2020."

"(For 2019, 100% of W-2 wages were taxed in NY)"

Severance Pay is the same as wages.

Sick Pay and Vacation Pay are the same as wages.

You just didn't have to show up to earn them.

[minnow150]

Since taxpayer lives in NJ, can I exclude the $120k from teh NY return, or does it have to be declared in NY, and NY taxes paid.

[sjrcpa]

Sounds like it was earned in NY.

[qbteachmt]

Why didn't you do that for 2019, then?

[minnow150]

He was commuting to NY and physically present in the office during 2019.

Has not been in NY since December 2019.

[PKCPAMST · Accepted solution]

The income sourced to New York must be reported there. 

Under NYCRR 20  §132.4(d, payments, such as severance pay that a taxpayer receives in consideration for “past services” upon termination of employment, are included in a nonresident individual's New York source income if they are derived from or connected with personal services performed in New York.

[qbteachmt]

Let's review:

You work somewhere, and you accrue Sick and Vacation pay that you don't take. So, that component is from Working In NY, by definition. Then, they paid Severance, which is from the NY Job. These three types of payments are treated the same as Wages. The 2019 Wages are reported as from the NY job.

You stated:

"Taxpayer accepted early retirement/severance in December 2019.

Final payment (severance/unused vacation and sick days, etc)"

You never described that any part of the Final payment was other than these three components. Not Retirement payment.

I'm just evaluating what you told us. You seem to know what it is and what it isn't.

We don't always get to do what we would Like to do.

[TylorValdez1]

NY as a form for this kind of situation. It is called IT-203-B. You would go to screen 55.092. Enter the employer in the field name or number of w-2. Then go to the field days worked outside of NY and enter 262. That will adjust the sate wages down so they will not have to pay tax on the income.

[TylorValdez1]

That form will save them over $6000 in state tax.

[qbteachmt]

@TylorValdez1 

"That form will save them over $6000 in state tax."

Only if it applies.

https://www.tax.ny.gov/pdf/advisory_opinions/income/a05_2i.pdf

"The severance payments, including the $7,500 in salary discussed in issue 1, are compensation for personal services that are attributable to past services and if the services were performed wholly within New York State, the entire amount of severance payments is New York source income for taxable year"

https://www.hodgsonruss.com/nonresident-allocation-rules.html

"Other Postemployment Compensation

Other forms of deferred compensation receive special treatment. For instance, under prior law, some forms of termination pay escaped  New York taxation, such as payments under a covenant not to compete contract.  But the tax law was changed in 2009 to make sure that all forms of post-employment compensation could be taxed by New York to the extent the taxpayer worked in New York in prior years."

[TylorValdez1]

The TSB makes reference to the allocation that the IT 203-B does. The only hard part would be how to determine since they are not solely dealing with one year.

Section 132.18 (a) of the Regulations provides, in part:
(a) If a nonresident employee (including corporate officers, but excluding employees
provided for in section 132.17 of this Part) performs services for his employer both within and
without New York State, his income derived from New York State sources includes that
proportion of his total compensation for services rendered as an employee which the total
number of working days employed within New York State bears to the total number of working
days employed both within and without New York State.

[Accountant-Man]

The employer already made some determination of the wages earned in NY by withholding only $3,000 of NYS tax.

I have several clients who work for consulting firms and might work in various states throughout the year. They live in NJ, so all wages are taxed to NJ.

NY always starts at 100% of federal wages, Box 16, but the tax in Box 17 is too low for 100% of the wages. On the IT-203 you can enter the NY wages, such as if the NJ resident worked at home for part of the year. Only the NY piece goes on the NY column of the IT-203.

Some employers are putting the NY wages in Box 14 of the W2. Some call it "NYWAGE."