Just who do I owe taxes to?

[MezUS]

Hi all,
My first post but I'll keep it brief and hope to contribute too to the threads here

1. Employer's Address on W2 is Illinois as their US headquarters.
2. I live in Texas.
3. I have the option to functionaly "report" into our office in either NYC or Jersey City New Jersey. I have team members in both offices too whom report to me. This won't change my W2 employer address etc.

Background I moved out of NYC last year luckily just before the COVID lockdowns in spring.
The move was a convenience to me as I can work remotely versus doing specific work that can only be performed in Texas.
I understand for 2020 I won't be paying NYC City Tax as I am a non-resident of NY State.
I will be paying NY State taxes for 2020 as my move was near the end of December last year.
I will be resident in Texas full time for all of 2021 too.

Q -For 2021, due to telecommuter tax or convenience rules, which do you think is the most tax-efficient state to "report into" on the assumption of a 250K average salary. I need to update my withholding ready for 2021.

Q - Does functionally reporting into an office impact where I pay state tax, or does the W2 location (which differs to the office I work for) take precedence (using the fact I will be non resident in any of Illinois, New York or New Jersey).

Thanks for any opinions, facts and inputs!

[soxfan10]

Do/will you live and perform the services in Texas? If so, that is who you owe taxes to (i.e., zero state income tax).

If you lived in New York or New Jersey for a part of 2020 then you should file a partial year return for 2020 for the period you were a resident in that state.

[mbres60]

I don't know the answer but I can tell you that many people work for large corporations with headquarters in another state. Where the headquarters is located has no bearing on the matter. Maybe someone else will chime in who is in a similar situation and can tell you if you will pay taxes in TX where you live or the state where your team is assigned.

[jfn111]

I lived in MN and worked 33 years for a company headquartered in NY City. I only paid MN taxes.

[PaunchyPirate]

My company was HQ’d in CA. I moved several times while working for them. My employer HR/Payroll always was informed when I relocated to a new state and did tax withholding based on that state. Texas was one of them. If you will be living in Texas, that will be your state. There are no state income taxes, which is nice. And all the more reason to make sure your payroll has its withholding right from day one.

[MezUS]

Thank you all I appreciate all the comments!

I can do the work "anywhere" so I think the test of "performing the work in Texas" doesn't apply e.g. I am not building something that can only be done in Texas, I simply just chose to live there and "telecommute" for 2020 and 2021.

I think what is confusing me is that NY and NJ both state they are telecommuting states so State Tax is payable - but then all the reading I find tends to confuse matters and it talks of living in NJ and working in NY so tends to apply to those who simply cross the state line on often occasions.

I need to update my withholding for 2021 to Texas (no state tax) but I am not convinced that due to my "office" location I report into I am not going to incur NY or NJ State tax. It's beyond confusing to me.

One example of tax information I found relating to NJ "New Jersey sourcing rules dictate that income is sourced based on where the service or employment is performed based on a day’s method of allocation. However, during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction." - I don't know what they mean by employer jurisdiction as my employer is Illinois headquarters.

For NY I found "you may still owe New York tax as a nonresident if you have income from New York sources." + "As a nonresident, you only pay tax on New York source income, which includes earnings from work performed in New York State". Well, I am not performing it in New York but it is the work product of our New York office (or could be New Jersey). But then I go back to my W2 and the Illinois part - sigh, I am going around in circles.

My domicile is Texas for all of 2021.

I promise to be less confusing on future threads

[international001]

Check this thread: viewtopic.php?f=2&t=325109

At the end of the day, you owe taxes where you live.

[PaunchyPirate]

I was a home-based worker the entire time I lived in Texas and Pennsylvania, while working for my CA-based employer. My home address was in the HR system as my work address in PA, because they had to withhold local taxes and state taxes. My management chain was in various other states. I really don’t think the office you “report to” has anything to do with where you pay taxes. Set up your Texas residency, make sure your payroll/HR have the correct address and enjoy your no state income taxes.

[MezUS]

Thanks all and for the thread link - appreciate it.

The fly in the ointment has been the NY tax convenience rules they are applying, in the olden days "nexus" was determined by where you live etc. But this coming tax season it seems due to COVID and whatnot NJ and NY have specific elements under convenience rules that could impact things.

Either way I really appreciate all the help!

[yules]

Thanks all and for the thread link - appreciate it.

The fly in the ointment has been the NY tax convenience rules they are applying, in the olden days "nexus" was determined by where you live etc. But this coming tax season it seems due to COVID and whatnot NJ and NY have specific elements under convenience rules that could impact things.

Either way I really appreciate all the help!

Are you a famous athlete? You might be subject to the so called jock tax: https://en.m.wikipedia.org/wiki/Jock_tax

That would complicate things, but at that point you probably would have people doing the math for you.

Yules

[Independent George]

I can do the work "anywhere" so I think the test of "performing the work in Texas" doesn't apply e.g. I am not building something that can only be done in Texas, I simply just chose to live there and "telecommute" for 2020 and 2021.

I think what is confusing me is that NY and NJ both state they are telecommuting states so State Tax is payable - but then all the reading I find tends to confuse matters and it talks of living in NJ and working in NY so tends to apply to those who simply cross the state line on often occasions.

I need to update my withholding for 2021 to Texas (no state tax) but I am not convinced that due to my "office" location I report into I am not going to incur NY or NJ State tax. It's beyond confusing to me.

One example of tax information I found relating to NJ "New Jersey sourcing rules dictate that income is sourced based on where the service or employment is performed based on a day’s method of allocation. However, during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction." - I don't know what they mean by employer jurisdiction as my employer is Illinois headquarters.

For NY I found "you may still owe New York tax as a nonresident if you have income from New York sources." + "As a nonresident, you only pay tax on New York source income, which includes earnings from work performed in New York State". Well, I am not performing it in New York but it is the work product of our New York office (or could be New Jersey). But then I go back to my W2 and the Illinois part - sigh, I am going around in circles.

My domicile is Texas for all of 2021.

If you've established domicile in Texas, then you are no longer telecommuting in NY/NJ regardless of where the corporate headquarters is. You live in Texas. You have a Texas drivers license. You are eligible to serve on jury duty in Texas. If you bought a home there, then you are paying Texas property taxes. You are no longer working in NY unless you fly there for a meeting - and even then, you are only liable for the days you were physically present. I live in IL, but I've had taxes withheld in NY for the days I worked there for meetings or when I went to visit family and worked remote.

From what you've said, you were a NY resident up until late 2020 and will have to pay taxes on the resident portion. But you have severed residency and should no longer be withholding. Stop paying them now - by continuing to withhold, you may actually be creating a case for them that you are telecommuting and intend to move back to NY as soon as the lockdowns end.

[Harry Livermore]

OP, I think you are fine simply paying taxes in TX (going forward) but I would get a CPA to sign off.
In my line of work, I routinely travel to other states, and am often (but not always) paid by a payroll service as a W2 employee. Most companies withhold taxes for the state where I performed my service. Some seem to withhold for their home state. Some seem to withhold for my state of residence. Some years I might have as many as 5 or 6 states' taxes withheld. I think the record one year was 12. Since this is short-term employment, it's usually a small amount of money. When I did my own taxes I would simply consider that money gone, as I was certainly not about to file a nonresident return in 5 (or 12!) states. My time is worth more than that. But when I switched to my CPA, he indicated that I was legally obligated to file in any state where I worked (and was on the radar via W2 withholding) Since the data is already in his computer, and he's done my two "main" states already, it's very little effort and he does not charge me to spit out the individual random state's returns.
It is kinda funny how the calculations go sometimes for nonresident tax "obligations", and how deep they dig into you. Most follow IRS guidelines but some have their own "standard deduction" or "exemptions". I also have noticed that I'm under-withheld in states that have a reputation for being "revenue hungry"; for example, I routinely end up doing one or two jobs in New Jersey each year. The payroll service(s) withholds an amount consistent with my weekly wage during the period of employment there. At the end of the year, however, I seem to consistently owe "just a little more". "Oops, honey, looks like we owe New Jersey another $65 this year!" Oy.
I would bill those jobs through my LLC, and only pay my home state, but union payroll rules and company policies make this difficult to do sometimes.
Anyway, OP, it's a complicated show but I think you only owe TX tax... but the price of admission at a good CPA firm may be worth it in your case.
Cheers

[galawdawg]

You would be well-served to consult with a tax professional. Good luck!

[humblecoder]

I am not an accountant, attorney, or other tax professional. Nor do I play one on TV. However, here is what I found with respect to New York telecommuting tax state income taxation.

https://www.tax.ny.gov/pit/file/nonresident-faqs.htm

My primary office is inside New York State, but I am telecommuting from outside of the state due to the COVID-19 pandemic. Do I owe New York taxes on the income I earn while telecommuting?

If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.

There is a separate document which describes what it means for your employer to establish a bona fide employer office at your telecommuting location.

For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below).

The criteria is listed in said document. The summary is that if you meet this primary factor you would qualify.

The home office contains or is near specialized facilities.

If the employee’s duties require the use of special facilities that cannot be made available at the employer’s place of business, but those facilities are available at or near the employee’s home, then the home office will meet this factor. For example, if the employee’s duties require the use of a test track to test new cars, and a test track is not available at the employer’s offices in New York City, but is available near the employee’s home, then the home office will meet this factor. In the alternative, if the employee’s duties require the use of specialized scientific equipment that is set up at the employee’s home (or at a facility near the employee’s home) but could physically be set up at the employer’s place of business located in New York, then the home office would not meet this factor.

If not, there are other criteria that you can meet to qualify, but they are more complicated, so there is no point in copying and pasting them when you are able to peruse them on your own.

If you don't meet the criteria, then my read as a layperson is that you still would owe New York State income taxes as a nonresident.

[spectec]

This issue may be different in 2020 and people's past experience may be totally irrelevant. You might want to think about the implications of the following article. COVID-related issues are causing some states to change (or try and change) their rules. People whose income is sourced in some of these states might find some ugly surprises this year, especially if their home state only allows a credit for income "earned in" the other state as opposed to "taxed by" the other state. The difference may hinge on a preposition.

https://taxfoundation.org/remote-work-f ... leworking/