What Counts as New York Source Income for Tax Purposes?

New York State taxes residents on all income, regardless of where it is earned, while nonresidents are taxed only on income sourced to New York. This distinction is crucial for those who live elsewhere but work in New York or have business and investment ties there. Understanding what qualifies as New York source income helps taxpayers avoid unexpected liabilities and comply with state tax laws.

Income Categories

New York source income includes wages, business earnings, real estate transactions, and certain investment gains. Wages from work performed in New York are taxable, even if the employer is based elsewhere. Bonuses and stock options connected to New York employment remain taxable, even if received after leaving the state.

Business income is taxable if generated from operations within New York. This applies to sole proprietors, partnerships, and S corporations earning revenue from services performed in the state, sales of goods shipped from a New York location, or rental income from in-state properties. Multi-state businesses must allocate income based on sales, payroll, and property factors.

Investment income, such as dividends and interest, is generally not considered New York source income unless tied to a business operating in the state. However, capital gains from selling New York real estate are taxable, regardless of the seller’s residency. Gains from partnerships or S corporations with New York business activities may also be subject to state tax, depending on the entity’s income allocation.

Residency and Nonresidency Criteria

New York determines tax residency based on domicile or statutory residency. Domicile refers to a taxpayer’s permanent home—the place they intend to return to after temporary absences. Changing domicile requires clear evidence, such as selling a primary residence, relocating family, or establishing strong ties elsewhere. Simply owning property in another state or spending time outside New York does not automatically change domicile.

Statutory residency applies when a non-domiciled individual maintains a permanent place of abode in New York and spends at least 183 days in the state during the tax year. A permanent place of abode includes apartments, houses, and long-term rentals. Brief visits, such as overnight stays, count toward the 183-day threshold, and partial days spent in New York—whether for work, travel, or personal reasons—can be included. Taxpayers must keep detailed records, such as travel logs and receipts, to verify their time in and out of the state.

New York aggressively enforces residency rules through audits, reviewing financial transactions, credit card statements, and utility bills to determine where a taxpayer truly resides. The burden of proof falls on the taxpayer to demonstrate nonresidency if challenged. Residency audits can lead to substantial tax liabilities, including penalties and interest, if the state determines an individual should have been filing as a resident.

Apportionment for Part-Year Residents

Individuals who move into or out of New York during the tax year must allocate income between their resident and nonresident periods. Unlike full-year residents, who report all income to New York, part-year residents pay tax only on amounts received while living in the state and on any income sourced to New York while living elsewhere.

Wages are often allocated using a day-count method. For example, if a person lived in New York for 120 days and earned $100,000 in salary for the year, the resident portion would be (120 ÷ 365) × $100,000, resulting in $32,877 of taxable income. Wages from work physically performed in New York as a nonresident remain taxable, regardless of apportionment.

For capital gains, taxation depends on when the transaction occurred. If an asset was sold while the individual was a resident, the entire gain is taxable. If the sale took place after moving out, it is generally excluded unless it involves New York real estate or business interests. Retirement income, including distributions from pensions and 401(k)s, follows federal sourcing rules and is typically exempt from New York tax once residency ends.

Remote Work Considerations

New York’s taxation of remote work follows the “convenience of the employer” rule, which can create unexpected tax liabilities for individuals working from home in another state. If an employee’s assigned office is in New York but they work remotely for personal convenience rather than out of necessity, their wages remain subject to New York income tax. This applies even if they never physically enter the state during the tax year. Only if the employer has an official out-of-state office where the employee is required to work can the income be sourced elsewhere.

This rule significantly affects workers in neighboring states like Connecticut, New Jersey, and Pennsylvania, who may face double taxation if their home state does not offer a full credit for taxes paid to New York. Since New York does not have reciprocal agreements with these states, affected individuals must carefully plan their work arrangements to avoid excessive tax burdens.

Filing Methods in New York

Taxpayers with New York source income must file the appropriate state tax return based on their residency status. Full-year residents use Form IT-201, while nonresidents and part-year residents file Form IT-203, which requires detailed income allocation. Errors in apportionment can lead to audits or additional tax liabilities, making accurate record-keeping essential.

Electronic filing is encouraged and often required for those using professional tax preparers. E-filing speeds up processing times and allows for direct deposit of refunds. Taxpayers who owe money can set up electronic payments or installment plans through the New York Department of Taxation and Finance. Late payments incur penalties and interest, with failure-to-file penalties reaching up to 25% of unpaid tax. Those facing financial hardship may qualify for penalty abatements or payment modifications, but approval is not guaranteed.