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I've been doing some research on paying state taxes while working remotely and I will be consulting a tax advisor or CPA in regards to the matter; however, I love the StackExchange and I wanted to see what kind of insight the community could provide.

I've seen some similar questions, but they still don't answer my question since it seems like every state has their own rules regarding the issue.

In short, I live in Washington, DC, but I will be working full-time for an employer who resides in New York. I will be working remotely. Obviously, I will take trips to New York here and there, but I don't think that is relevant to the tax question. Also, my employer doesn't require me to live in DC for the position (as it's a programming position and technically speaking I could probably work from anywhere), but a majority of the clients are in DC and having me here is a solid strategic move for the company in regards to being able to meet with clients and having a presence here. I don't know how relevant that can be to this either (see Convenience of the Employer Rule) since my primary responsibility is programming.

From what I read, there are State Reciprocal Tax Agreements, but I don't really understand it completely. Taxes really confuse me, and I can't seem to bring all this together in terms of state-by-state rules, what information is accurate, and what information is most up to date.

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Obviously, I will take trips to New York here and there, but I don't think that is relevant to the tax question.

Oh but it is! It may make you even a resident of NYS/NYC if you're not too careful.

In any case, you need to file a nonresident tax return in NYS because you have New York-sourced income. See more details on this page from the NYS treasury department:

If you're a New York State nonresident you must file Form IT-203, Nonresident and Part-Year Resident Income Tax Return, if you meet any of the following conditions:

  • You're a nonresident with New York source income and your New York adjusted gross income federal amount column (Form IT-203, line 31) exceeds your New York standard deduction.

On your DC tax return, you enter the credit for NYS paid tax on your schedule U. This credit is non-refundable, i.e.: you'll pay the highest of DC and NYS rates.

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    Thanks for the quick reply @littleadv. I appreciate the information here, but I am confused by your last statement. "...credit for NYS paid tax on your schedule U. This credit is non-refundable, i.e.: you'll pay the highest of DC and NYS rates." I'm not familiar with those terms and what you mean. It doesn't sound good though! Thanks. – envysea Aug 27 '13 at 21:46
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    Credit offsets your tax bill. So your DC tax will be less by the amount of the NYS tax you paid. However, if the NYS amount is higher than your overall DC tax liability - you won't be refunded the difference, you just won't pay to DC. – littleadv Aug 27 '13 at 21:49
  • Oh, I see what you're saying. So basically I'm paying NY taxes plain and simple. New York has a lower state rate than DC. DC allows me to take credit for the taxes paid to NYS, but that difference isn't refundable (if NY was higher). But I will be able to deduct everything I pay to NY. That's not too bad. For a second I inferred that you said I would pay both DC and NY state taxes (no credit). Also, it appears the tax rates are almost the same. Your time is/was much appreciated. – envysea Aug 27 '13 at 22:03
  • @envysea no problem, but do verify with a CPA/EA knowledgeable of what's going on on the East Coast. I'm from California, so my answer is based on what I understood from the form instructions. – littleadv Aug 27 '13 at 22:11
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As a CPA I would offer the following advice:

Your obligation to the state of New York, if any, is a facts and circumstances question. If you reside in DC and do a majority of your work there AND you only take occasional trips to New York for meetings or training, etc. - You have no obligation to the state of New York.

The New York "Convenience of the Employer" rule and "State Reciprocal Tax Agreements" are all drawn with the situation where someone lives in, say New Jersey, but routinely works in New York. The federal courts have weighed in on this issue a number of times. The bottom line has been wherever you butt is sitting when you do the work, that is where you are going to be taxed!

Even if you occasionally go to New York and stay a couple of days rewriting code, the courts have considered this "de minimus" and thereby making you not subject to New York tax.

WARNING: Occasionally employers misinterpret these events and withhold income tax in their state and not the state in which you reside. It is your duty, and right, you object to that happening and you should do so to protect your interests.

Based upon the facts as you have described them, your employer must withhold DC income tax. If your employer mistakenly withholds New York state income tax, DC can and will levy your employer for the DC state income tax that should have been withheld AND for the state (in the case district) unemployment insurance (tax) they should have paid on your behalf.

There are three reasons this is so important to you:

  1. You should not be burdened with filing a New York state income tax return to get back New York state income tax that was withheld from your pay check(s). Plus, having to file a non-resident New York state income tax return puts you "in the system." Trust me, you do not want to get into a state's income tax system unless you are required to do so. The courts are replete with cases where a resident of one state got tangled up with another states tax department and ended up having to go to court to undo liens and levies, etc. If you get it right to state with you will avoid a myriad of possible problems.

  2. You and the District of Columbia have a vested interest in DC tax being properly withheld. You would be subject to an underpayment penalty is you had to first file a non-resident New York return and get back you New York withholding so that you could then pay you DC income tax. (In essence, unless you have plenty of money in the bank, you would have to quickly, in February, file a non-resident New York state income tax return to receive a refund by April 15th so you could pay your DC income tax on the due date. Furthermore, if you owe more than $100 in DC income tax on April 15th, you will be penalized for not having made quarterly estimate payments. Then penalty is 10.00% per annum, compounded daily.

  3. Most importantly, Should you be terminated, you are in "No Man's Land" regarding your ability to receive unemployment benefits. Since your employer did not withhold DC income tax, they would not have paid anything into you DC unemployment benefits account. So you will not be able to receive unemployment benefits in DC. Since you are not a resident of the state of New York, you will not be able to receive unemployment benefits in New York.

Simply put: Make sure your employer classifies you as a DC employee and withholds DC income tax. If not, make sure you keep a great record of events. Should you get into the "hassle of your life" it will all make a great magazine article.

Good luck.

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[A]t present [January 2014] five states do not follow [the physical presence] rule. Those states are New York, Pennsylvania, Delaware, New Jersey and Nebraska. In those states all wages earned from an employer in any of those states are allocated to those states unless by necessity the nonresident’s work must be performed from his or her out-of-state location. Basically, these states will tax a nonresident telecommuter’s wages if the work is performed out-of-state for the convenience of the employee. - See more at: http://www.koscpa.com/newsletter-article/state-tax-consequences-telecommuting/#sthash.jhrDn2N9.dpuf [emphasis added]

Get thee to an appropriate expert. See if the above is going to bite you.

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You don't pay taxes to New York State because you have zero New York Source Income.

  • You are NOT performing services in New York State.
  • You are NOT carrying on your occupation in New York State.

So, if you were to work from Florida, you'd pay no state income taxes.

  • Why Florida? Are you just using that as an example of a state that isn’t New York? The OP is living in DC… – bdesham Apr 28 '14 at 19:49
  • Yes, that and because Florida has no state income tax. – ma11hew28 Apr 29 '14 at 13:30
  • The OP has said he does go to NY for business purposed at least a few days a year, so this answer is wrong. – Andy Feb 15 '15 at 19:09

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