NYS Nonresident Wage Allocation: No De Minimis Rule

by Brian Gordon, CPA
“This article originally appeared in the May 2013 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.”

 

You're a nonresident of New York state who works just one day in the state in a given year. Are you still subject to income tax in New York? Yes. Even one day makes you liable for taxes: There is no de minimis rule for nonresident income tax. New York State Department of Taxation and Finance Technical Memorandum TSB-M-12(5)I, issued July 5, 2012, explains the tax department’s policy.
 

Actually, there is a de minimis rule—but it's for employer withholding, not for the employees paying taxes. Consider  nonresident employees  assigned to a primary work location outside of New York.  If they work 14 days or less in New York, the employer is not required to withhold New York tax for that employee. In that case however, the employees are still required to file a New York nonresident income tax return and allocate the appropriate portion of their wages to New York based on the days worked within and outside of New York, and pay any tax due. The employees are also responsible for estimated taxes if warranted.

There are exceptions to the de minimis rule, however. The 14-day rule for withholding does not apply to compensation paid to nonresident traveling salespersons or other employees when the compensation depends entirely on the volume of business they transact. In these cases, the employee’s income is not earned evenly across the number of days worked like a salaried employee; the amount earned in New York in a few days, based on business transacted, may be a significant number—not de minimis.

Compensation paid in one year that is related to services performed in a prior year also does not qualify for the 14-day rule. Examples of this would be deferred compensation and compensation from nonstatutory stock options. Because this income was earned in prior years, the employer would be required to withhold New York taxes based on the days worked in and out of New York in the years the income was earned. For deferred compensation, generally you would use the last three full years worked plus the most recent partial year, as a basis for the allocation. For nonstatutory stock options, the allocation period is option grant date to vest date. This was the result of a rule change in 2006.
Other situations where the 14-day de minimis rule does not apply involves employees that can earn a very high income for one day of work. Withholding, and of course income tax, is required for the following types of taxpayers, even if they work only one day in the state:

Public Speakers
This includes those who earn income from public speaking and personal appearances. It is not limited to income earned from services in the form of a speech, presentation or personal appearance.

Professional Athletes
It should be noted that the allocation method for professional athletes’ wages has changed over the years. At one time, athletes’ wages were allocated based simply on the number of games in a regular season schedule, plus playoffs (this means games that count, not practice or exhibitions) played in New York, divided by the total number of games. Now, earnings are allocated by work days, or what New York calls “duty days.”Duty days include all days that the athlete is required to be at work, including pre-season games, practice and workouts.

Interestingly enough, the New York Giants football team is based in New Jersey. In most years, they do not play any games in New York (unless they play against the Buffalo Bills, in Buffalo, which last happened in 2007); however, they have held their training camp in New York. The salaries of the nonresident players, coaches and others with the team are therefore subject to NYS withholding and income tax based on the number of duty days practicing in New York. (More on this issue can be found in the Tax Compass section of the April 2013 Tax Stringer.)

Entertainers
This includes, but is not limited to, actors, singers, musicians, dancers, circus performers, writers, directors, producers, set designers, and any person appearing on television, radio, the stage, a night club performance or hotel show. In short, anyone who received compensation related to a live, recorded or filmed performance in New York state. (References to specific parts of state tax law that cover nonresident withholding and taxation can be found in the technical memorandum.)

For a free phone consultation on this or any other tax issue or concern please call
Brian Gordon, CPA at (516) 510-6041 or email at bgord520@gmail.com.