August 23, 2021

New York’s Push to Audit Tax Returns of Nonresident Filers

By Lisa Haime, Senior Manager, Tax & Business Services

New York’s Push to Audit Tax Returns of Nonresident Filers State & Local Tax

New York continues its push to audit tax returns of nonresident filers. New York has already sent thousands of requests for information to nonresident taxpayers related to their 2020 nonresident filings. Moreover, while New York used to focus its audits on high income taxpayers, now taxpayers earning just $100,000 may be contacted by the state.

Based on New York’s sourcing rules, wages for services performed in New York by a nonresident are subject to New York personal income taxes. Additionally, due to New York’s convenience of the employer rule, wages for services performed from home by a nonresident whose primary work location is in New York are also subject to New York income taxes (unless the employer established a bona fide employer office at the home location).

New York is requiring nonresident taxpayers to substantiate the income allocated to New York on their recently filed New York individual income tax returns. The state is seeking to determine whether the allocation of income to New York was underreported. Some of the critical information being requested by the state includes:

  • Type of compensation earned
  • Number of working days
  • Number of non-working days
  • Number of days worked at home
  • Location of work days
  • Number of days worked at each location
  • Nature of duties performed at each location

In addition to scrutinizing nonresidents, New York is also focused on resident taxpayers taking a credit for taxes paid to other states. Taxpayers who worked out of state may have properly taken a credit in New York for taxes paid to the state where they worked. However, if those taxpayers now work primarily from home in New York, the state may not allow a credit for taxes paid to another state on income earned while working from home.

Please consult your Marcum State and Local Tax professional for guidance on the implications of your specific facts and circumstances.