A Taxing Situation

Paul Rohan has lived in Westport for 40 years. A retired CPA, he practiced in both Connecticut and New York.

Last week he emailed me. He notes a double state income tax issue that may affect commuters to New York who now work from home. He says:

While my practice was never in taxation (but rather in financial reporting and auditing), I long ago became aware of this issue. It emerged when personal computers first made working from home a real possibility — not the rarity it was when limited to relatively rare blizzards or hurricanes that precluded commuting for a day or two.

With extremely limited exceptions, New York takes the view that state income taxes for non-residents are due for all work done on behalf of New York-based employers, regardless of where the work is performed.

Paul Rohan

Connecticut takes the view that for Connecticut residents, all work performed in Connecticut is subject to Connecticut income tax, regardless of where the employer might be located. Thus a Connecticut resident employed by a New York employer is subject to state income tax in both New York and Connecticut for all work done at home. Connecticut will recognize a credit for New York income taxes paid only if the work actually was performed outside of Connecticut.

Many articles have been written on the subject in tax accounting and legal publications. The best description — from the Connecticut Office of Legislative Research — fully addresses the issue, and references the Zelinsky case that was decided by the New York appeals court. (Click here to see.)

My concern is for the many “06880” commuter readers who work for New York employers. Like most people, those readers may be completely unaware of the conflicting positions taken on working from home by the states of New York and Connecticut. At 2020 tax return filing time, they will have a huge surprise. Being forced to pay state income taxes to both Connecticut and New York for the same work performed at home is, in my view, unconscionable.

Making this issue known at this time might force politicians on both sides of the  state line to get together and solve this problem once and for all. Over the years since working from home became more commonplace, many articles have appeared in tax accounting publications about this. They mention various politicians at the state and federal levels who have expressed interest and concern, but the issue remains largely unresolved.

Tax forms can be daunting for anyone.

Since governors in New York and Connecticut claim to be coordinating all their efforts related to the pandemic and its economic effects, perhaps now would be a good time to ask those who represent us to help solve this unfair state tax dilemma.

This issue has been created for many readers as a direct result of following the both the Connecticut and New York governors, who have adamantly asked employees to work from home. It seems grossly unfair that compliance with those executive orders should have such a high price tag — the unintended consequence of double taxation.

Of course, since both states are strapped for cash, this may present their leaders with a convenient mechanism to cash in on the crisis, by claiming they are only following the laws and regulations as they exist.

NOTE: After sending his original email, Paul followed up the next day. He wrote:

“New York State is planning on taxing out-of-state emergency healthcare workers who came into the state at the urgent request of the governor. The governor’s position is that since tax regulations call for anyone working 14 days or more in the state is subject to the New York State non-resident income tax, they will be required to pay that tax—no exceptions.”

10 responses to “A Taxing Situation

  1. Josh Stein

    You wouldn’t pay full taxes to both states. You are taxed on the portion you work in each state / credited between the states. If one typically worked in NY and now are in CT working from home, wouldn’t they find their state taxes as a whole are less? One should be updating their withholding and doing a W4 for the appropriate work location / their employer may need to take action to recognize the working from home situation. Further, regarding the comment about healthcare workers, they are getting paid multiples of what they normally get paid. In most cases two times, some cases more. My understanding is they are being paid a higher rate not only because of the emergency situation (hazard pay) but because they higher cost of living, thus their wages are adjusted for COLA, and they are receiving more pay working in the tri-state area than they would be in other places. I used to travel as a consultant for a big firm. I had to file and pay taxes to dozens of states some years. This is nothing new.

  2. K.F. Spearen

    Thank you so much for the info Paul “”

  3. Tom Duquette, SHS '75

    In regard to medical volunteers being subject to non-resident income tax if they work >14 days in NY…”no exceptions”; I guess that’s gratitude for you.

    One minute health care professionals are all “heroes” and the next they owe money in essence paying for the privilege of leaving home and family and putting their lives at risk to help out New York. Kind of sad.

  4. Lawrence Zlatkin

    This is a very timely comment. And, double taxation is a real risk at all times for commuters who work in NY. But, the answer here falls into the question of “for the convenience of the employer.” If a Connecticut resident telecommutes on his/her own, that is not for the convenience of his/her employer. But, because of shelter in place rules in both NY and Connecticut, the Connecticut commuter is required to work from Connecticut at the direction of his employer and state government. He/she therefore should not be subject to NY taxation, and all of his/her income earned under these rules should be apportioned by NY to Connecticut. His/her work from home (WFH) is mandated and not because of his own convenience.

    The challenge lies with wage withholding, for those of us subject to payroll withholding. It would be preferable to adjust your wage withholding to Connecticut from NY to avoid the need to claim a refund of NY taxes, which may invite a dispute. Also, your employer may now have a taxable presence in Connecticut, unexpectedly, which raises a different set of questions.

  5. Paul Rohan

    Lawrence is right on point, and hopefully the New York taxing authorities take the position that working from home during the pandemic is for the “convince of the employer.” New York has been quite tough on this determination in the past. However, if New York were to do take that position, it would be giving up a a huge amount of taxes that it would otherwise expect to collect from Connecticut commuters, and the position of the New York State governor insisting on taxing health emergency care workers who came into the state to help during the pandemic suggests to me that the state might be similarly intractable on this issue which only impacts nonresident commuters who have no vote in New York.

    The purpose of my original piece was to encourage our political leaders to address this issue in light of the pandemic and to add some clarity for the many commuters for whom this is likely to become a battle between New York and Connecticut taxing authorities. Unless there is some clarity, as both taxing authorities are unlikely to relent in what they believe are valid claims for state tax revenue on the same earnings.

    I would strongly recommend anyone potentially impacted by this issue to have a serious discussion with your tax advisor so you are fully aware of how this might impact you and, perhaps more importantly, what can be done now to mitigate any further potential tax exposure that might be created by working from home.

  6. I’d say … “it’s complicated”! I wouldn’t be too concerned with dual taxation as there is always a determining factor for one state or the other, but I’d suggest that anyone with questions should discuss their concerns with their CPA tax advisor.
    As a CPA with a full time tax and accounting practice based in Westport, we work with clients (individuals and companies) on multi-state issues every day. We have clients dealing with personal taxes and small businesses with tax nexus or connectivity, in all 50 states. Over the past few years, one of the fastest growing areas for CPA practices has been sales tax and multi-state taxes.
    Also, the telecommuting or “work from home” laws have evolved significantly over the past few years, and you are correct that the concept of nexus, or connectivity, to a state’s tax laws for the businesses has changed. Working from home may or may not create nexus for a company, and much of that must be considered in light of the states responses to the recent “Wayfair vs. South Dakota” decision regarding economic nexus.

    My best advice is to connect with your CPA trusted advisor.

  7. Ed Schechter

    Dan/Paul
    A subscriber of yours forwarded your blast. The message seems to be at odds with what CT did effective 1/1/19. See the attached link and please comment.
    Ed
    https://portal.ct.gov/DRS/Individuals/Individual-Tax-Page/Nonresident-Working-in-Connecticut

    From: 06880 <comment-reply@wordpress.com>
    Date: May 9, 2020 at 5:01:13 AM EDT
    Subject: [New post] A Taxing Situation
    Reply-To: 06880 <comment+cj1rg9xm_3zcjmhlmcw62psq@comment.wordpress.com>
    
    Dan Woog posted: “Paul Rohan has lived in Westport for 40 years. A retired CPA, he practiced in both Connecticut and New York. Last week he emailed me. He notes a double state income tax issue that may affect commuters to New York who now work from home. He says: While m”

  8. Ed Schechter

    Never heard back on this.

  9. Michael Pianin

    This is the article that I was referring to

    Michael J Pianin