Allocating Bonus for Prior Year to New York

[mkwtax]

I have a client who works for a NY company and lives in NJ. In 2021, all of his wages were NY-sourced since the company didn't have a bona fide office in NJ. For 2022, they do have a bona fide office in NJ, so his 2022 wages are NJ-sourced, not NY-sourced. However, he received a bonus in 2022 based off of his 2021 wages and is being told by his company that this amount should be NY-sourced since it was based off of his NY-sourced wages from 2021. I am trying to enter this in the system, but since IT-203-B calculates the allocation percentage based off of the days worked in NY in the tax year, it's not allocating any of the wages to NY for 2022. I've tried to do an override and it's not printing. Any ideas? 

[BobKamman]

Why is he taking tax advice from his employer?  Does he work for H&R Block?  

Did they withhold NY tax on it?

[itonewbie]

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@mkwtax wrote:

For 2022, they do have a bona fide office in NJ, so his 2022 wages are NJ-sourced, not NY-sourced.

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It's not just whether the NY employer has a bona fide office in NY.  It's also whether that NJ office is the assigned workplace of the employee, whether in the normal capacity of the employment or for other business purposes.

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However, he received a bonus in 2022 based off of his 2021 wages and is being told by his company that this amount should be NY-sourced since it was based off of his NY-sourced wages from 2021.

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Sourcing is not a matter of whether the bonus was "based off of his NY-sourced wages from 2021" but whether it is in relation to where services were rendered during the performance year, in this case, 2021, using the same criteria such as whether services rendered outside of NY from telecommuting were for the convenience of the employer.

Assuming your client was employed to work out of the NJ office in 2022 and all services were performed without the state of NY, none of the salary should be sourced to NY.  The bonus, however, would be sourced at least in part to NY as explained above.

In the case of full-year NY-NR, the employer would most likely have reported the same amount in Box 16 and Box 1 on the W-2.  NY would then expect the full amount to be subject to sourcing on IT-203-B.  Since Box 1 consists of two components related to two different sourcing periods, salary based on the current year and bonus based on 2021, you will need two separate IT-203-B Schedule A's.

To get this done in ProConnect Tax, you will need to create two W-2's for the same employer:

• First W-2: Enter everything as you normally do, except create an additional line in Box 1 just for the base salary, coded to NY, with an S;
• Second W-2: Box 1 should have only 1 line strictly for 2021 bonus, coded to NY, with an S.  There will be no OASDI/Medicare, etc. which are all reported on the first W-2;

Under State & Local > Part-Yr./Nonres. Information > NY State Wage Allocation, create two allocations for IT-203-B, Schedule A:

• First Allocation: Link to first W-2, which is for **bleep** Line 1(h) of IT-203-B, Total days worked in year at this job; and
• Second Allocation: Link to second W-2, which is for 2021 bonus.  You will need to enter the day counts based on the criteria explained above.

The first allocation will trigger a critical diagnostic since none of the salary would be sourced to Line 1 of IT-203.  But that allocation on IT-203-B is necessary or NY will be looking for the missing $$$.  I think you should be able to transmit after checking the box to ignore the diagnostic.

[mkwtax]

Thank you! I'll try this and appreciate the help. And to clarify - yes, bona fide office in NJ for all of 2022 but NOT in 2021 (2021 was considered NY sourced as no bona fide office in NJ). 

[mkwtax]

Yes, they withheld NY taxes on it.