What happens with taxes while I’m working at home?

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Q. My son lives in New Jersey and works in New York City. As a result, he pays taxes to both states and New York City. With COVID-19, he will have worked 80% of the year in New Jersey. How will this affect his city and state tax situation? Should his withholding be adjusted?
— Trying to help

A. The situation you describe has been very common in 2020.

Here’s how it works.

New York State has a “convenience of the employer” rule stating that when an employee works from their home located outside of New York, their wages are sourced to New York unless it can be shown that the work at home was for the convenience of the employer, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

“In past years, when someone like your son might have worked from home on some Fridays during the summer months to avoid having to travel into New York City and to possibly get an early start to the weekend, those Fridays would have been treated as days worked in New York City as your son worked from home for his own convenience,” Becourtney said. “Presumably, his office was open and he could have worked from the office.”

But with many businesses prohibiting their employees from entering their New York workplaces due to the pandemic, it would stand to reason that your son has worked from his New Jersey home not for his convenience but by necessity, Becourtney said.

He said when it comes time to prepare his 2020 income tax returns, he could consider an allocation of his wages outside of New York based on the days worked outside of New York.

“This will reduce his New York State nonresident tax, however, it will result in a corresponding increase in his New Jersey resident tax as his resident credit for New York State tax will decline by a similar amount,” he said. “Thus, he could end up significantly overpaid on his New York State tax and significantly underpaid on his New Jersey tax.”

Becourtney said New York City eliminated its nonresident tax many years ago, so your son should not be having any New York City taxes withheld from his wages by his New York employer.

“As far as his state withholding being adjusted, he should discuss the situation with the human resources department of his employer,” he said. “If the employer does not have business operations in New Jersey, it is unlikely that it is going to withhold any New Jersey tax from his wages.”

Email your questions to moc.p1603663203leHye1603663203noMJN1603663203@ksA1603663203.

This story was originally published on Oct. 13, 2020.

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