If I work from home, which state can tax my income?

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Q. I’m working as a construction consultant at age 73. My office is in Manhattan, but I have been working exclusively from my New Jersey since February 2020. This year since I did not work in New York in 2021, I paid nearly $7,000 to New Jersey on my 2021 return. I requested a refund of New York taxes taken from my paychecks, but New York has refused. Although I consulted on New York projects, I also consulted for projects in other states. The company has offices in five states, none of which are in New York or New Jersey.
— Worker

A. It can be hard to get fast answers from the taxing authorities.

Since the start of the pandemic, more and more employees who work out of state have questions about which state they need to pay taxes to.

You didn’t clearly say whether you are an employee or a 1099 contractor.

“If you are a 1099 independent contractor, you would source your income based on where the work is performed or based on where the benefit is received by the customer, depending on the state’s income tax rules and nexus rules,” said Kenneth Bagner, a certified public accountant with Sobel and Co. in Livingston

But the rules are very intricate, and you would need to discuss with a tax advisor the details of your specific situation.

If you are an employee rather than an independent contractor — as it seems you had withholding of New York taxes from your pay — note that New York is taking a “tough stance” that you still are a New York worker if your office is in New York and you work remotely in New Jersey for your own convenience, Bagner said.

“There are some ways around this, but New Jersey has a very rigid test to meet to prove you are a New Jersey employee, which is hard to meet,” Bagner said, noting that this state issue could make its way up to the courts in the future.

You can ask New Jersey for a credit for the amount of tax you paid to New York. Bagner said. But there is no guarantee New Jersey will agree.

“New Jersey may take the position that you work in New Jersey and then you will then be taxed in two states,” he said.

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This story was originally published on Aug. 26, 2022.

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