New York Never Sleeps When It Comes to Employment Taxes

Employers doing business in New York are subject to state and local taxes that are as numerous as they are complex, two payroll industry experts said May 9.

State Income Tax

For state income tax purposes, employers must withhold from the wages of employees working in the state, regardless of the physical locations of employers’ offices, said Jonathan Stone, Employment Tax Managing Director for KPMG LLP.

“Anybody that is transacting business in New York is going to be required to withhold and remit New York state income tax from the wages paid to individuals performing services in New York,” he said. “Doing business in New York [means] you have a physical office in New York or somebody that’s working remotely in New York.”

New York also has a telecommuting rule, also known as the convenience of the employer test, that subjects nonresident employees to state income taxes for work performed outside of New York, even if employees primarily work remotely in another state, he said at PayrollOrg’s 42nd Payroll Congress in Nashville. Employees subject to the rule are not able to apportion their income based on the number of days they actually spend working in New York.

New York state tax withholding applies if a nonresident employee voluntarily works in another state, not if the employer assigns the nonresident employee to work remotely outside of New York for the employer’s convenience. In practice, however, employers find it difficult to prove that nonresident employees voluntarily worked remotely outside of New York, he warned.

“Individuals that are working remotely in New Jersey or Connecticut get into a situation where they are coming to New York and reporting to someone in New York,” he said. “And they are subject to New York withholding. So, when they are in New Jersey or Connecticut or whatever state they decide to work remotely in, the telecommuting rule applies.”

Other State Taxes

Another state tax that employers must understand is for paid family leave and disability insurance, said Lia Coniglio, Managing Editor of PayState Update for PayrollOrg. Unlike most other states with paid family leave, employers in New York remit the taxes to their family-leave insurance vendors, not the state.

“All of the funding is tied to your company’s disability program,” Stone added. “So, the easiest solution is to talk with your vendor. See how they want the funding.”

Employers in New York City may also be subject to the state’s Metropolitan Commuter Transportation Mobility Tax, which applies to certain employers with employees in New York City, Long Island, and surrounding counties, Coniglio said. Employers are subject to the MCTMT if they must withhold state income tax and have payroll expenses of at least $312,500 in a calendar quarter.

The state even has an optional payroll tax for certain qualifying employers called the Employer Compensation Expense Tax, she said. Employees of participating employers can receive a tax credit on their state personal income taxes.

“I don’t know any company that actually [participates] in [the Employer Compensation Expense Program],” Stone said. “This is something that New York tried to put together to be more employee friendly to bring more employees to New York. But, I don’t think any companies want the additional expenses associated with it.”

New York City Local Taxes

Employers doing business in the New York City metropolitan area must also consider the various local employment and income taxes, Stone said. New York City and Yonkers both have income taxes that apply to residents of those jurisdictions, for example.

“When somebody is working in New York City but is not residing in New York City, there’s no New York City taxes,” he said. “New York City taxation is only for individuals who live in the five boroughs of New York City. If somebody is a Yonkers resident, Yonkers withholding applies.”

Additionally, New York City requires employers with at least 20 full-time employees in New York City to offer pretax transit benefits, Stone said. The federal limit for pretax transit benefits is $300 per month.