Do I Have to Pay NY State Income Tax if I Live in Another State?

Navigating state income tax obligations can be complex, especially for individuals residing in one state but with financial ties to another. New York State, with its unique tax regulations, often presents intricate scenarios for non-residents. Understanding these specific rules, including residency definitions and the types of income New York considers taxable for non-residents, is important for anyone earning income or maintaining connections within New York while living elsewhere.

Defining New York Residency

Determining your New York tax residency status is the first step in understanding your potential tax obligations. New York State tax law distinguishes between two primary categories of residents: domiciliaries and statutory residents. An individual can only have one domicile, which is their permanent home, the place they intend to return to after any absence.

To ascertain domicile, New York tax authorities consider various factors. These include the location and size of your homes, where you spend the majority of your time, and your active business involvement. Also considered are where your family lives and where you keep personal belongings and valuable possessions. Changing domicile requires demonstrating a clear intention to establish a new permanent home outside New York and severing ties with the state. This can involve actions like changing voter registration, vehicle registration, driver’s license, and updating financial statements to reflect a new address.

Even if New York is not your domicile, you may still be classified as a statutory resident for tax purposes. This occurs if you maintain a “permanent place of abode” in New York for substantially all of the taxable year and spend more than 183 days in the state during that year. A “permanent place of abode” is defined as a dwelling suitable for year-round use that you maintain, whether owned or leased, for more than 10 months of the year. Any part of a day spent in New York counts as a full day for the 183-day threshold, with limited exceptions for travel through the state or hospital stays. A permanent place of abode does not require intent to make New York your permanent home; even occasional use of a dwelling can qualify.

Understanding New York Source Income

If you are a non-resident of New York, you are taxed only on income derived from New York sources. This means that only income earned from activities or property within the state is subject to New York State income tax.

Wages and salaries earned by non-residents are sourced to where the work is physically performed. New York applies an exception known as the “convenience of the employer” rule. Under this rule, if a non-resident employee works outside New York for their own convenience rather than their employer’s necessity, that income may still be considered New York source income. This applies even if the work is performed from a home office in another state, provided the employee’s assigned office is in New York. To be considered working out of necessity, the out-of-state duties must be those that, by their nature, cannot be performed at the employer’s New York place of business.

Income from a business, trade, profession, or occupation carried on partly within and partly outside New York State must be apportioned or allocated to New York on a fair and equitable basis. This ensures that only the portion of business income attributable to New York activities is taxed. For non-residents, income from real property located in New York, such as rental income, is always considered New York source income. This includes profits from rental properties and gains from the sale of New York real property.

Capital gains from the sale of tangible personal property located in New York are also considered New York source income. Gains from the sale of an interest in an entity (like a partnership, LLC, or S corporation) that owns New York real property may be sourced to New York. This can apply if the fair market value of the New York real property or cooperative shares held by the entity meets certain thresholds, 50% or more of the entity’s total assets. Interest, dividends, and gains from the sale of intangible personal property are not considered New York source income for non-residents unless they are part of income from a business carried on in New York.

Calculating and Reporting New York Tax

Once residency status is determined and New York source income is identified, non-residents must calculate their New York tax liability and fulfill filing obligations. Non-residents use Form IT-203, Nonresident and Part-Year Resident Income Tax Return, to report their New York source income. This form facilitates the allocation and apportionment of income to determine the portion taxable by New York.

The tax calculation for non-residents involves a specific method: the tax is initially computed as if the individual were a full-year resident on their total federal adjusted gross income. Then, an income percentage is determined by dividing the New York adjusted gross income (NYAGI) by the overall federal adjusted gross income (FAGI). The resulting percentage is applied to the calculated resident tax, prorating the tax based on the proportion of income sourced to New York. Supplemental forms, such as Schedule IT-203-B, Nonresident Business and Farm Income Allocation, may be necessary for detailed income apportionment.

New York offers a credit for taxes paid to other states or localities on income that is also taxed by New York. This credit helps prevent double taxation on the same income. The credit is nonrefundable and is limited to the amount of New York tax imposed on that income. To claim this credit, the income must have been both derived from and taxed by the other jurisdiction, and also subject to New York taxation.

A non-resident must file a New York State income tax return if they have New York source income exceeding their New York standard deduction. Filing is also required if a refund of New York State, New York City, or Yonkers income taxes withheld from pay is desired, or if any refundable or carryover credits are being claimed. Tax payments can be made electronically through the New York State Department of Taxation and Finance’s Online Services account, which allows payments directly from a bank account or by credit card (often with a convenience fee). Payments can also be made by mail using a check or money order. For those unable to pay the full amount due, installment payment agreements may be available.