W-2 for NYS Non Resident

[taxxman02]

New client who is a resident of South Carolina where his home and family are, but all his income is from working in NYS, he commutes back and forth every week. He has an apt in NY for when he is here. His W-2 only shows income form NY which is normal but shouldn't it also show the same income for the resident state  of S.C. His spouse does not work and there isn't any other type of income from S.C. Since there is only the NY address on the W-2 do I claim him a NY resident and don't even file a S.C return, or claim the same income for S.C, then take the credit for taxes paid to another state.  

[jeffmcpa2010]

"Since there is only the NY address on the W-2 do I claim him a NY resident and don't even file a S.C return,"

You will need to look at the residency requirements for both states. (I do not know them for either.)

New York may argue that he spent more time in NY and therefore is a NY Resident. SC may argue that he is registered to vote, and carries a SC Drivers license, which would make him a resident there...again these are hypothetical's which you need to research.

I guess the question would be - is there any difference in the tax paid to either state, in the following filing situations.

 - NY Resident tax return, no SC tax return (if non resident of SC, with no SC income)

 - NY Nonresident tax return, SC resident tax return with credit for tax paid to NY.

If there is no difference, I would just pick one and move on.

[sjrcpa]

He will probably be considered a resident of both states for tax purposes if he spent more than 183 days in NY.

NY's tax rate is higher than SC's so there will be a difference.

No, you don't just get to pick what gives the best tax result.

[Terry53029]

Sounds like he will be a resident for both states, and you will take a credit in SC for taxes paid to another state. Following are rules for NY:

Can I be a resident of New York State if my domicile is elsewhere?

You may be subject to tax as a resident even if your domicile is not New York.

You are a New York State resident if your domicile is New York State OR:

• you maintain a permanent place of abode in New York State for substantially all of the taxable year; and
• you spend 184 days or more in New York State during the taxable year. Any part of a day is a day for this purpose, and you do not need to be present at the permanent place of abode for the day to count as a day in New York.

[itonewbie · Accepted solution]

SC Tax Residency

Before we tackle the NY tax issues, let's get to the easier bit, which is about your client's residency status for SC tax purposes.  SC did not codify the definition of "domicile" (see SC Code §12-6-30).  Common law principles would apply - intent and actions are largely what determine an individual's domicile.  Home is where the heart is, that's where you intend to return after a a period of absence.  SC rulings have explained domicile as "the place where a person has his true, fixed and permanent home and principal establishment, to which he has, whenever he is absent, an intention of returning."  There is little question, prima facie, with the commuting arrangement and the family being stationed in SC that SC is his domicile.

Whether the W-2 reports an SC address or any SC wages is not relevant for your purpose of determining your client's reporting obligations to the various states.  This could have happened for a variety of reasons, the most likely being your client not having informed HR/Payroll accordingly or that HR/Payroll is not familiar with the reporting requirements.

NY Tax Residency

Now, we move on to a slightly more complicated issue in terms of NY tax.  This is actually a very classic case for NY and it's not unusual.  NY has been very aggressive over the years in catching people under similar circumstances.  This is not a problem for the thrones of commutes who travel in and out of NY for work everyday except to those who have the luxury of maintaining a "permanent place of abode" in NY.  This hinges on (1) what constitutes "permanent place of abode" and (2) whether the taxpayer spends more than 183 days in NY.  Everyone filing an IT-203 has been required to respond to the question about living quarters for years - there's really no escape from that.

There are a lot of nuances in the definition of "permanent place of abode" and the reference to "permanent" is construed to mean much more than property rights.  You will need to find out from your client what type of accommodation he maintained in NY, how it was provided (if it's not procured by him), and check how that matches up with the definitions of "permanent place of abode".  There are rudimentary explanations from many different sources, including the NY Department of Taxation and Finance, but I find the department's nonresident audit guidelines to be the most comprehensive.

Before you start all that research about "permanent place of abode" that would incur time cost, I'd first focus on the 2nd part of this formula.  If your client traveled to NY only for work, it is very possible that your client did not have more than 183 days in NY.  Assuming there are 5 workdays per week over 52 weeks, that gives you 260 calendar days.  After taking into account vacations and other types of days off, it is not uncommon for folks to have 240 workdays per annum.  If that applies to your client, he may have only 140 (240 x 260/365) calendar days in NY.  Obviously, that's something you'd need to verify with your client but it should be a relatively straightforward day counting exercise.

Other State Tax Credit

Provided your client was a tax resident of NY, the employment income would be reportable to and taxable in NY.  Period.  When it comes to tax credit, the sourcing state would have the first right to tax the employment income.  Assuming your client worked solely in NY, this would be NY.  And this means no credit could be claimed on state tax paid or payable to SC on the employment income.

SC, on the other hand, allows a credit to be claimed for state taxes paid on income sourced to that particular state (SC Code §12-6-3400).  Sourcing would generally be determined based on principles applicable to nonresident taxpayers, i.e. where services were performed (see  SC Code §12-6-2220).

In other words, your client, who is presumably a SC domiciliary resident, would file a full year resident SC return and claim a credit for taxes paid to NY but only limited to the portion related to services performed in NY (which brings us to a different but dicey topic).  And this is regardless of your client's residency status in NY.

Telecommuters

I am actually surprised that your client did continue to commute throughout all of 2021.  I know things were getting better but I would have thought that more (or some) of his time would have been spent telecommuting instead.

If your client did telecommute with his NY employer, his role is not normally based in SC, and he did not do so for the convenience of his NY employer, NY would source all his wages to NY and subject it to tax in full.  In this unfortunate situation, SC, technically, will not provide any relief in terms of tax credit for NY tax paid on telecommuting days to the extent your client was working within the state of SC.

NY's position has been tried and tested.  There's nothing you could do retrospectively.  It's one of those situations where you client would be best advised to consult you before an event occurs.

[taxxman02]

My client works for a large airline where he is a mechanic, this is very common for airline workers to live in one state and work in either one or several other states during the year. I too at one time worked in the airline industry and one year I lived in NC, worked in PA, NY and MA. I am used to other state returns but what got me on this one was not having any income show for SC. I would like to thank you for the very thorough answer and to answer another point about his NY residency when he is here he stays at his father's apt in Manhattan.

[itonewbie]

No problem, @taxxman02.  Working across states is a fact of life for many industries.  Way back when I was still with accounting firms, the dreaded timesheet was the basis for cross-state reporting and withholding.

I still think the key would be the day count but your client may well have crossed the 183-day threshold, now that we know it's his father's apartment he's staying at (if he also visited his dad in NY on his days off work).

Since he habitually stayed at that apartment and it's apparently available to him year round, there's little doubt it would be deemed a permanent place of abode.