What Do Population Losses in New York Mean for Residency Audits?

According to the U.S. Census Bureau, New York lost more than 319,000 residents between July 2020 and July 2021 – the highest of any state in the nation. A significant portion of this is likely related to the pandemic with large numbers of New Yorkers deciding to move elsewhere to escape the high infection rate and offices allowing people to work remotely. Informal tracking of address changes and cell phone movements by the media and real estate firms confirm Census figures. What does this mean for New York?

While the population losses have political implications in redistricting legislative seats, the most immediate effect is reduced revenue for the state. In December 2020, Reuters reported that a net 70,000 people left the New York metropolitan area in 2020, resulting in an estimated $34 billion in lost income for the state. No one has yet projected the impact on revenue for 2021. The number of people moving may not seem large, but there is evidence of a shift in demographics. The ones leaving are the ultra-wealthy and those coming in are lower-income earners who pay less in taxes. As a result, New York is suffering reduced revenue disproportionate to the number of people leaving.

New York is a high tax state and every year it loses residents to lower-tax states, especially retirees. However, because New York offers other benefits, it is not unusual for people to move elsewhere but still maintain a home in the state. That opens them up to a potential residency audit. New York is very aggressive in enforcing residency rules. That’s because state residents pay taxes on all income regardless of where it is earned, while non-residents only pay taxes on income earned in New York, such as wages. To ensure it collects money from all residents, New York closely examines whether someone really changed their residency to another state or they are just claiming that to avoid paying taxes.

Because so many people moved or started telecommuting due to the pandemic, the state is taking even more interest in auditing people. For example, New York has already sent out over 100,000 notices to non-residents who worked for New York companies and paid taxes to New York on those wages in previous years but didn’t in 2020. Others are receiving residency audit notices because while they may have relocated to escape COVID, it wasn’t meant to be a permanent move. These audits are likely to increase further in 2022 as the Tax Department catches up on its backlog. The state needs to make up for that lost revenue and auditing those who tend to be wealthier is an easy fix.

If you may be subject to a residency or income allocation audit, contact us for a consultation.

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