Contributed by: PhillipB, FreeTaxUSA Agent, Tax Pro
New York has one of the most complicated state tax codes in the country. One of the most challenging parts of the NY tax code is how the state taxes wage income earned by nonresidents, part-year residents, or even former residents. Preparing your NY return correctly can help you avoid a letter from the state asking for information that should’ve been included with your original return.
What is the wage allocation?
Allocation simply means to assign based on some standard measurements. For New York nonresidents, they allocate your wages from a NY employer by the number of days you both worked in NY, and days worked from home as an employee assigned to a NY office. Nonresidents who are not assigned to work in NY only allocate days worked in NY to NY. The allocation can be a bit complex and sometimes feel a little tricky.
If any of the following applies to you, consider using the wage allocation option for your New York tax return:
- You’re a part-year resident of New York who worked for a NY employer during a portion of the year while you were a nonresident.
- You’re a nonresident of New York who works in NY, and you have an assigned workplace for your employer in the state where you live.
- You’re a nonresident of New York, and your employer withheld NY income tax. If the NY withholding was an error, you may not need to allocate wages. However, the state will likely send a letter requiring the allocation if you file a nonresident return with NY withholding and no wages allocated to NY.
If you’re a nonresident with income from exercising stock options from prior year grants you received while you lived or worked in NY, you’ll need to complete a Multi-Year Allocation. This is a NY form that isn’t supported by FreeTaxUSA and many other do-it-yourself (DIY) software providers. If this is your situation, you may want to use a tax professional for your return.
When is wage allocation unnecessary?
If all your wage income is taxable by NY, you don’t need to include the wage allocation form with your return. Situations where this is the case include the following:
- You commute to NY for all your work from another state.
- You work 100% of the time remotely for a NY employer for your own benefit.
- You were a part-year resident, and you stopped working for the NY employer as of the date you moved. You’d need to accurately divide your NY income from the income you earned in the other state.
How do I allocate wages in FreeTaxUSA?
Follow these steps to include the NY wage allocation to your return:
- Follow menu path State > New York > Wage Allocation.
- Answer Yes to the questions on the page and click Save and Continue.
- On the next screen, click +Add a Job.
- Enter your job description and the number of days you worked on the job. If you worked at the job for the entire year, enter 365.
- You’ll need to calculate Saturdays and Sundays, holidays, sick leave days, vacation days, and other nonworking days. Generally, there are 104 weekend days and 13 federal and NY state holidays each year.
- Days worked outside New York include all the days you physically worked outside NY.
- Days worked from home include any days you worked from home if your work location was in New York. If your primary work location is in a state other than New York, enter zero.
- You’ll also need to re-enter the full amount of wages for the income from the employment being allocated.
- Continue to the screen labeled How much did you earn from NY as a nonresident? and you’ll find the allocation has automatically been entered in the New York Nonresident Amount box.
- Click Save and Continue to apply the allocation to your return.
Example – Joey’s office is in New York
Joey is an analyst for a Wall Street firm and lives in Connecticut. The firm has assigned Joey to its NYC office, but it also has offices in Boston and Philadelphia where Joey sometimes works during the year. He doesn’t work on weekends, or on the major bank holidays observed in NY. He also took a two-week vacation in the summer. He worked in Boston and Philadelphia for 2 months in total. He reports daily to his Wall Street office for the equivalent of 1 week each month. Otherwise, he works from home in Connecticut.
His NY allocation would look as follows in the software:
If you continue to the screen labeled How much did you earn from NY as a nonresident? You’ll find $86,550 of his $100,000 salary allocated to NY. Even though Joey only physically worked 60 days in NY, NY treats him as if he worked 206 days in NY.
Example – Joey’s office is in Connecticut
Assume the same facts as the previous example, except Joey’s main assigned office is now in the Hartford Connecticut office. He works 1 week each month in the Hartford office and 1 week each month on Wall Street.
The allocation in this scenario would look as follows:
This time, when you continue to the screen labeled How much did you earn from NY as a nonresident? Only $25,210 is allocated to NY. The biggest difference is that none of the days Joey works from home or in the Connecticut office are allocated to NY.
Conclusion
If you work in NY and live in another state, you’ll need to know when to use the New York wage allocation to divide your salary between NY, your home state, and any other states where you worked.
If you physically work in New York, or you work exclusively from home for your New York employer for your own benefit, all your income may be taxable in NY and your home state. In that case, you wouldn’t need to allocate your wages.
If you work for a NY employer in NY and other states, or you work in NY and from home in your home state while you’re assigned to an office outside NY, you’d need to allocate wages using NY Form IT-203-B. Where you’re assigned and whether there’s a benefit to your employer for working at home are key factors in knowing how many work-from-home days should be included in the allocation.