Where Did You Work During COVID for New York State Tax Purposes?

Were you one of the lucky people who got to work from home because of COVID? Do you understand the possible tax implications? If you live and work in different states, you may be subject to taxation in more than one state. Telecommuting introduces a possible complication in determining where you “work,” so it is important to understand the rules. Let’s take a common fact pattern that occurred during the height of COVID.

A taxpayer lived in an apartment in New York City and worked in New York City. In March 2020, he decided to leave the city and telecommute to work from a residence in New Jersey due to COVID. He later gave up his city apartment in November 2020 after the lease was up. He continued to telecommute. Where should he be taxed?

Did he change his residency or domicile from New York to New Jersey?

Generally, if his intent was to leave New York permanently and change his domicile to another state, he may no longer be considered a New York State resident for tax purposes. However, he should be careful of a New York residency audit. That’s because auditors will be looking at his past actions in moving but with the benefit of seeing what he has done subsequent to the move. For example, if he moves back to New York this year or makes other changes to his activities that indicate his move to New Jersey was intended to be temporary because of the pandemic, he may be adjudged a New York resident for the entire time and have to pay taxes on all of his income.

If he changed his domicile to New Jersey, was he working in New York or New Jersey when he telecommuted?

A non-resident (or part-year resident) telecommuter may still owe taxes to New York on wages earned in New York. (Note some states may offer credits for taxes paid to New York State.)

In New York, if a taxpayer is a nonresident but their primary business office is located in New York, telecommuting days are still considered “days worked in the state” and the taxpayer will continue to owe New York State income tax on that income even though the taxpayer was physically working outside New York. However, if the employer specifically acted to establish a bona fide employer office at the taxpayer’s telecommuting location, the taxpayer will not have a tax obligation to New York State from wages earned while working from the bona fide office.

Unfortunately for taxpayers, the State makes it difficult to prove a bona fide office. In most situations arising because of COVID, taxpayers will have to show the existence of a substantial number of factors from a list the state has provided on its website to avoid taxation. Examples of these factors include the following:

  • The home office is a requirement or condition of employment.
  • The employer has a bona fide business purpose for the employee’s home office location.
  • The employee performs some of the core duties of his or her employment at the home office.
  • The employee meets or deals with clients, patients, or customers on a regular and continuous basis at the home office.
  • The employer does not provide the employee with a designated office space or other regular work accommodations at one of its regular places of business.
  • The employer reimburses expenses for the home office.

These and other factors are more difficult to prove than you think. For example, Zoom meetings with your co-workers or clients don’t qualify. Unfortunately, if you fail to establish a bona fide office, you will most likely end up paying some New York taxes.

If you have concerns about your potential tax exposure, consult a reputable tax professional as soon as possible.