Department of Taxation and Finance provides clarification on when 14-day rule applies as well as exceptions to the rule, but several key issues remain unresolved.
On July 5, the New York Department of Taxation and Finance (the Department) issued a Technical Memorandum, TSB-M-12(5)I, outlining the Department's policy regarding the employer withholding threshold for employees that are expected to work 14 days or fewer in New York during the calendar year. Previously, the Department's policy regarding the 14-day withholding threshold was provided in its Withholding Tax Field Audit Guidelines. Despite the more formal guidance provided in TSB-M-12(5)I, the Department's policy regarding the withholding threshold leaves several open questions regarding the application of the withholding standard for nonresident employees.
Overview of the 14-Day Withholding Threshold
Section 671(a)(1) of the New York Tax Law provides that every employer maintaining an office or transacting business within New York and making payment of any wages subject to New York State personal income tax is required to deduct and withhold tax from those wages. The amount withheld should be substantially equivalent to the tax reasonably estimated to be due.
Generally, a nonresident individual is required to file a New York State personal income tax return to the extent that the individual has any New York source income.[1] For purposes of an employer's withholding requirements, however, TSB-M-12(5)I provides that an employer will not be assessed tax, penalties, or interest for failing to withhold New York State tax on wages paid to nonresident employees performing services both in and out of New York if all of the following conditions are met:
- The employee is assigned to a primary work location outside of New York State.
- The employer reasonably expects that the employee will work in New York State for 14 days or fewer in the calendar year.
- The employee does not work in New York State for more than 14 days (subject to certain special rules, as discussed below).
- The employee's compensation is not within the exceptions to the 14-day rule (discussed below).
If the employer reasonably expects that an employee will be required to work in New York State for more than 14 days in the calendar year, then the 14-day rule does not apply, and the employer is required to withhold on all New York State wages paid to the employee. TSB-M-12(5)I also provides that "when applying the 14-day rule, any part of a day spent working in New York counts as a full day. However, do not count any day spent in New York for the sole purpose of job-related training, such as in-house training courses, trade association conferences or symposia, or professional development workshops, seminars, or conventions."
Special Rules
TSB-M-12(5)I provides several special rules. If a nonresident employee was not initially expected to work more than 14 days in New York State during the calendar year, but does in fact work more than 14 days in New York State, then the employer is required to withhold on all New York State wages paid after the 14th day. If a nonresident employee is assigned to a primary work location in New York or to a different position that will result in the employee working more than 14 days in New York, then the employer is required to withhold New York State wages paid on or after the date of the change.
Exceptions to the Rule
Under TSB-M-12(5)I, the 14-day rule does not apply to the following:
- Compensation paid to nonresident traveling salespersons when the compensation depends entirely on the volume of business transacted
- Compensation paid in one year that is related to services performed in a prior year (e.g., deferred compensation, compensation from statutory stock options)[2]
- Compensation paid to nonresident public speakers, athletes, or entertainers performing services in New York
Level of Authority
The Department's technical memoranda, such as TSB-M-12(5)I, explain its current existing policies. Generally, such technical memoranda serve only an advisory purpose and are not binding on the Department or entitled to administrative deference. As such, TSB-M-12(5)I should be viewed as an explanation of the Department's current policy regarding the 14-day withholding threshold.
Remaining Issues
The Department's guidance leaves several key issues unresolved. For example, how should the employer determine what constitutes a New York workday for purposes of calculating the 14-day exception? The memorandum describes what should be counted as a full New York workday, but this description raises numerous questions regarding the scope of activities that potentially may satisfy the standard for a New York workday.
The Department has not provided a de minimis standard or minimum threshold for the amount of work-related activities that should be required to constitute a New York workday. For example, should an employee who responds to a few work-related emails or makes a brief work-related phone call while on vacation in New York be treated as working in New York for the day?
Morgan Lewis contacted the Department on an informal basis to request further clarification regarding its application of the "workday" standard. Based on our discussion, the Department's explanation of what constitutes a New York workday is open-ended and can be open to interpretation. Therefore, although it is impractical to expect employers to track every day in which an employee performs any work-related function in New York, the Department potentially may consider any work activities performed in New York to be a New York workday for purposes of computing the 14-day threshold.
While TSB-M-12(5)I does not clarify the meaning of a workday for purposes of the 14-day rule, the Department's prior technical memoranda and return instructions for other areas of the New York tax law, namely nonresident personal income tax, shed some light on the interpretation. TSB-M-06(5)I defines a normal workday as "any day that the taxpayer performed the usual duties of his or her job." Importantly, the memorandum further explains that "responding to occasional phone calls or emails, reading professional journals, or being available if needed does not constitute performing the usual duties of his or her job." Similarly, the instructions for Schedule A of Form IT-203-B, Nonresident and Part-Year Resident Income Tax Return, which computes the New York nonresident allocation of wage and salary income to New York, provides that workdays are "days on which [the employees] were required to perform the usual duties of [their] job."
Therefore, a case can be made that the Department's general interpretation of what activities constitute a "workday" involves the performance of services that are more substantial than making occasional phone calls or responding to a few emails when located in New York. As previously mentioned, however, the Department has yet to clearly define what constitutes a New York workday for purposes of the 14-day rule and potentially may take a different position on audit.
It is important to note, however, that the 14-day withholding threshold does not apply to compensation paid in one year that is related to services performed in a prior year, such as deferred compensation and compensation from statutory stock options. Many employers do not track withholdings for employees who worked in New York for 14 days or fewer in a given taxable year. Since the 14-day exception does not apply to compensation paid in one year that is related to services performed in a prior year, however, such information may be necessary in order to comply with New York withholding requirements. Similarly, employers seeking to come into compliance with withholding requirements through New York's Voluntary Disclosure and Compliance Program may be required to provide such information.
Implications
Overall, employers should continue to exercise diligence in maintaining information regarding the work locations of employees in order to comply with New York withholding requirements. For employees receiving the types of compensation that are within the exceptions to the 14-day rule, employers should also maintain employee work location records, even if the employees are working fewer than 14 days in New York. Employers should also continue to monitor any updates to the Department's guidance regarding the application of New York withholding requirements.
Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis attorneys:
Washington, D.C.
Mary B. Hevener
Patrick Rehfield
Douglas Tan
[1]. Please note that any deferred compensation that qualifies under the special federal blocking rules (i.e., benefits that are paid under a so-called "excess benefit plan" or benefits that are paid out as annuity over at least 10 years) should be subject to tax only in the employee's state of residence and not in the nonresidence state where the services are performed.
[2]. See footnote 1 above regarding federal blocker rules that prevent state taxation on certain deferred compensations.
FAQs
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.
How many days can you live in New York without paying taxes? ›
Any individual who maintains a permanent place of abode in New York must keep adequate records showing he or she did not spend more than 183 days in New York during the tax year.
Did withholding taxes change for 2022? ›
When it comes to federal income tax rates and brackets, the tax rates themselves aren't changing from 2022 to 2023. The same seven tax rates in effect for the 2022 tax year – 10%, 12%, 22%, 24%, 32%, 35% and 37% – still apply for 2023.
What is the New York State withholding tax rate? ›
New York Payroll Taxes
The state as a whole has a progressive income tax that ranges from 4. % to 10.9%, depending on an employee's income level. There is also a supplemental withholding rate of 11.70% for bonuses and commissions.
What is the 183-day rule? ›
Understanding the 183-Day Rule
Generally, this means that if you spent 183 days or more in the country during a given year, you are considered a tax resident for that year. Each nation subject to the 183-day rule has its own criteria for considering someone a tax resident.
Does New York have 183-day rule? ›
Both the PPA test and the 183-day rule must be satisfied in determining statutory residency. Any part of a day spent within New York counts as a day toward the 183-day rule except in cases where your presence is incidental to travel or for medical treatment.
How do I avoid a NYS residency audit? ›
Proper planning, long before the State challenges a taxpayer's residency status, can alleviate some of these issues. A taxpayer should be prepared with evidence of their change in domicile and substantiation that they did not spend more than 183 days in New York or that they relinquished their permanent place of abode.
Do I have to pay NY taxes if I don't live in New York? ›
You are subject to New York State tax on income you received from New York sources while you were a nonresident and all income you received while you were a New York State resident. You may have to pay income tax as a resident even if you are not considered a resident for other purposes.
Do I have to pay NY state income tax if I work remotely? ›
New York-Based Employees Who Work Remotely Out-of-State Are Subject to New York Income Tax. New York State taxes New York residents on worldwide income and nonresidents only on New York source income. There are three key considerations in determining whether a person is a New York tax resident.
What is the withholding allowance for 2022? ›
The value of an annual withholding allowance is to be $4,300 in 2022, for calculations using Forms W-4 issued in 2019 and earlier. The amount was not indexed ...
For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400, and for heads of households, the standard deduction will be $19,400 for tax year 2022, up $600.
What is being exempt from 2022 withholding? ›
To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year.
Who is exempt from NY Tax Withholding? ›
Exemption from New York State and New York City withholding
You must be under age 18, or over age 65, or a full-time student under age 25 and. You did not have a New York income tax liability for the previous year; and. You do not expect to have a New York income tax liability for this year.
What is the New York State income tax rate for 2022? ›
New York state income tax rates are 4%, 4.5%, 5.25%, 5.9%, 5.97%, 6.33%, 6.85%, 9.65%, 10.3% and 10.9%. New York state income tax brackets and income tax rates depend on taxable income and filing status.
What are the New York State tax brackets for 2022? ›
NYC Tax Brackets 2022
- Earning less than $21,600 - 3.078%
- Earning between $21,600 and $45,000 - $665 plus 3.762% of the excess over $21,600.
- Earning between $45,000 and $90,000 - $1,545 plus 3.819% of the excess over $45,000.
- Earning over $90,000 - $3,264 plus 3.876% of the excess over $90,000.
An individual who spends “too many days” in the U.S. may unintentionally become a U.S. tax resident. If the result is 183 days or more, then the individual meets the SPT and will be considered a U.S. tax resident, under US domestic tax law, unless an exception applies.
Can I live in 2 states at once? ›
Legally, you can have multiple residences in multiple states, but only one domicile. You must be physically in the same state as your domicile most of the year, and able to prove the domicile is your principal residence, “true home” or “place you return to.”
How many days a year are you considered a tax resident? ›
What is tax residency? For most countries, tax residents are those who spend more than half the year (183 days) in the country.
What triggers NYC residency audit? ›
The statutory residency test provides that a taxpayer will be treated as a resident of New York if he maintains a “permanent place of abode” in New York for substantially all of the year and spends more than 183 days of the tax year in New York.
Is 10 days in New York too long? ›
10 days in New York is the perfect time to become acclimatized to the city and its people. It also allows you to take your time while visiting the attractions around central and greater New York, including Lady Liberty, the Empire State Building, Brooklyn, and Coney Island.
Long Island Taxes
Property taxes aren't the only thing you have to worry about in Long Island. You also need to contend with the relatively high New York State income tax as well as the standard federal taxes.
How far back can NY State audit you? ›
New York State Tax Law generally places a three-year statute of limitations on tax audits, beyond which the Tax Department may not audit without your written consent.
What happens if you get audited and don't have proof? ›
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.
What happens if I'm selected for tax audit in NY? ›
In most cases, you will receive a letter asking for information. Less frequently, we set up an appointment to go over your records at your home or business, as appropriate. We usually ask for additional information or records about one or more of the returns you filed during the last three years.
What happens if no federal taxes are taken out of my paycheck near New York NY? ›
Your employer might have just made a mistake. If your employer didn't withhold the correct amount of federal tax, contact your employer to have the correct amount withheld for the future. When you file your return, you'll owe the amounts your employer should have withheld during the year as unpaid taxes.
How do I avoid paying New York State taxes? ›
Table of Contents
- Avoid or Defer Income Recognition.
- Max Out Your 401(k) or Similar Employer Plan.
- If You Have Your Own Business, Set Up and Contribute to a Retirement Plan.
- Contribute to an IRA.
- Defer Bonuses or Other Earned Income.
- Accelerate Capital Losses and Defer Capital Gains.
- Watch Trading Activity In Your Portfolio.
If you have a telecommuting employee in a different state than your location, or employees in multiple states, you must withhold income taxes for the state they live and work in. You'll pay unemployment taxes and report their income to the states where they live, not your state.
What is considered NY source income? ›
New York source income includes income derived from or connected with a business, trade, profession, or occupation carried on in New York State.
Does remote work count as making money in another state? ›
A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor.
What is the convenience rule? ›
The convenience of the employer rule allows some states to impose income tax on employees working remotely in other states for companies located within their borders. Unless employees live and work in a state with no income tax, they may be taxed twice.
Allowances are no longer used for the redesigned Form W-4. This change is meant to increase transparency, simplicity, and accuracy of the form. In the past, the value of a withholding allowance was tied to the amount of the personal exemption.
How do I withhold more taxes on w4 2022? ›
Extra Withholding Can Increase Your Tax Refund
Simply add an additional amount on Line 4(c) for "extra withholding." That will increase your income tax withholding, reduce the amount of your paycheck and either jack up your refund or reduce any amount of tax you owe when you file your tax return.
What is standard withholding table? ›
A federal tax withholding table is a chart that helps employers figure out how much income to withhold from their employees. This is usually in federal income tax, Social Security, and Medicare. These tables may also include state income tax depending on the state in which the business is located.
At what age is Social Security no longer taxed? ›
Are Social Security benefits taxable regardless of age? Yes. The rules for taxing benefits do not change as a person gets older. Whether or not your Social Security payments are taxed is determined by your income level — specifically, what the Internal Revenue Service calls your “provisional income.”
What exempts you from withholding? ›
You can claim exemption from withholding only if both the following situations apply: For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability. For the current year, you expect a refund of all federal income tax withheld because you expect to have no liability.
Does New York require state tax withholding? ›
If you are an employer as described in federal Publication 15, Circular E, Employer's Tax Guide, and you maintain an office or transact business within New York State, whether or not a paying agency is maintained within the state, you must withhold personal income tax.
What are withholding exemptions? ›
A withholding allowance is an exemption that lowers the amount of income tax you must deduct from an employee's paycheck. A larger number of withholding allowances means smaller income tax deductions, and a smaller number of allowances means larger income tax deductions.
What is the minimum income to file taxes in 2022 in New York? ›
If you did not have to file a federal return, but your federal adjusted gross income plus New York State additions were more than $4,000 ($3,100 or more if you can be claimed as a dependent on another taxpayer's federal return), then you are required to file a state return.
How much is a 75000 salary after taxes in New York? ›
If you make $75,000 a year living in the region of New York, USA, you will be taxed $19,161. That means that your net pay will be $55,839 per year, or $4,653 per month.
What is the average income in New York City 2022? ›
Area Median Income (AMI)
The AMI for all cities across the country is defined each year by U.S. Department of Housing and Urban Development (HUD). The 2022 AMI for the New York City region is $120,100 for a three-person family (100% AMI).
Single or Head of Household Tax Withholding Table
| If the Amount of Taxable Income Is: | The Amount of Tax Withholding Should Be: |
|---|
| Over $0 but not over $8,500 | 4.00% |
| Over $8,500 but not over $11,700 | $340.00 plus 4.50% of excess over $8,500 |
| Over $11,700 but not over $13,900 | $484.00 plus 5.25% of excess over $11,700 |
10 more rows16 Feb 2021
New York Payroll Taxes
The state as a whole has a progressive income tax that ranges from 4. % to 10.9%, depending on an employee's income level. There is also a supplemental withholding rate of 11.70% for bonuses and commissions.
Are 2022 tax brackets changing? ›
In the U.S., there are seven federal tax brackets. The marginal rates — 10%, 12%, 22%, 24%, 32%, 35% and 37% — remain unchanged from 2022. However, for the 2023 tax year, the IRS is making significant adjustments to many of the income thresholds that inform these brackets.
Do I have to pay NY state tax if I work remotely? ›
New York-Based Employees Who Work Remotely Out-of-State Are Subject to New York Income Tax. New York State taxes New York residents on worldwide income and nonresidents only on New York source income. There are three key considerations in determining whether a person is a New York tax resident.
Do I have to pay New York income tax if I work out of state? ›
Under the New York “convenience of the employer” rule, the wages of an individual who is a resident of a state other than New York but who works for a New York-based employer, are considered to constitute New York source income unless, out of necessity, the employee is obligated to work outside of the state.
How many days can you work in a row in New York State? ›
One day rest in seven.
Do I have to pay New York taxes if I work remotely? ›
New York's "convenience rule" permits state tax authorities to tax NY-based employees for days worked remotely in a location outside of NYS. New York imposes a tax on non-residents for income "derived from sources in" New York, including income from a "business, trade, profession or occupation carried on" in the state.
Can you be a resident of two states? ›
Legally, you can have multiple residences in multiple states, but only one domicile. You must be physically in the same state as your domicile most of the year, and able to prove the domicile is your principal residence, “true home” or “place you return to.”
Who is exempt from NY tax Withholding? ›
Exemption from New York State and New York City withholding
You must be under age 18, or over age 65, or a full-time student under age 25 and. You did not have a New York income tax liability for the previous year; and. You do not expect to have a New York income tax liability for this year.
What is considered New York sourced income? ›
New York source income includes income derived from or connected with a business, trade, profession, or occupation carried on in New York State.
However, proposed regulatory text issued by the Department of Labor suggests the minimum weekly salary threshold for the executive and administrative exemptions will increase from $990 to $1064.25 per week (inclusive of board, lodging, and other allowances and facilities) in upstate New York effective Dec. 31, 2022.
What is the longest shift you can legally work in NY? ›
There are no limits on: The number of work hours per day (except for children under 18)
How many days in a row can you work without a day off in NYS? ›
Employers in New York State must provide certain employees with at least 24 consecutive hours of rest in any calendar week.
How do you pay taxes if you work in one state and live in another? ›
If you've been living in a different state from your employer for the entire tax year, then you'll need to file a “non-resident” state return, which certifies that, while you earned income in that state, you did not live there for any length of time.
