Telecommuting for NY Company - Do I pay taxes in my residence state of RI?

[fastlapp]

I will be moving to Rhode Island soon but working for a NY based employer and am trying to plan for taxes. 

Here's the situation:

- I am resident of RI and physically in RI for 100% of all working days

- My employer is in NY

- My W2 will state RI as my home address

- 100% of my W2 wages will be allocated to NY (e.g. on Boxes 15-17) and NY taxes will be withheld throughout the year from my paycheck.  

- I have other non-W2 sources of income (rental properties in RI, interest, dividends, etc.)

My understanding is that due to the "convenience vs. necessity" telecommuting rule in NY, I will be pay NY taxes on 100% on my W2 income, and that the NY designation on my W2 is therefore appropriate. My questions are:

- Will I pay any income tax on my W2 income to Rhode Island? To the extent that the NY income tax rate exceeds the RI rate, I think the answer is no because I will receive a credit to my RI taxes for the amount paid to NY, and this credit will exceed the total amount owed to Rhode Island. Is this correct? 

- Do I pay any income tax to NY for my non-NY sources of income (e.g. rental properties not located in NY)?

- Can I apply deductions to NY state income which are derived from things which are not in NY. For example, can I reduce NY taxable income using a deduction for the mortgage interest on my house in RI? 

[MaryK4]

Yes you will have to report your W2 wages to Rhode Island as your resident state.  You will be able to apply the credit however.

As a New York nonresident, you will not have to pay tax on any income that is not state-source i.e. the rentals in Rhode Island, other passive income

New York does have and allows deductions, but mortgage interest is not one of them.

[fastlapp]

Thank you so much. This is helpful.

I read in several places that in the past residents of CT who telecommuted for a NY based employer were subject to double-taxation because they could not receive a credit on their CT tax return for the taxes paid to NY. Connecticut said that the income was sourced inside its own borders (b/c that's where the employee was physically) rather than to New York, and thus no credit was available. Do you know if this is still the case for CT residents? The reason I ask is that we are also looking at properties in CT close to the RI border. 

Articles which cite the example above?

https://money.cnn.com/2018/05/30/pf/taxes/work-from-home-tax-increase/index.html

https://www.hodgsonruss.com/newsroom-publications-NewYork_srevisedconvenienceruleprovidessomeclarity...

[MaryK4]

Yes, that is the current state - but I think this issue will be looked at more in the very-near future.  I hope that the state income tax will not be a deciding factor, but it can tip the scales.

In general, the states adhere to the principle that income should be taxed once at the state level (hence the credit) but New York is trying to get more.  Not that New York does not have a basis for the claim- now that we are a more mobile society, taxes need to adjust- but it needs to be uniform.

@fastlapp

[fastlapp]

Thank you. So, CT residents / telecommuters effectively get double-taxed because they don’t receive a credit for NY taxes paid, but RI residents / telecommuters do not get double taxed because they get a full credit for their NY taxes? That seems deeply unfair to CT residents. I wonder why RI is different. 

thank you 

[DanielV01]

@fastlapp Actually, Connecticut is somewhat unique in its stand.  Most other states allow a credit when income earned by a resident is taxed in another state.

Connecticut, however, would lose a lot of money to NY because of the aggressive telecommuting law, since NY tax is also generally higher than CT, CT would end up seeing very little of that tax revenue.  Last year Connecticut passed a reciprocal telecommuting law to tax telecommuters who live in states such as New York.  The reasoning is that CT will tax the telecommuter working for a CT company to the extent that the state they live in does the same to the CT resident telecommuting for a company in that state.