- A former New York State resident who moved out of state was subject to tax on severance received from her job in the state.
- Serves as a reminder of the vast reach of New York State in taxing income received by nonresidents or former residents.
Background
A nonresident who moved out of state in 2019 and received severance in 2020 was subject to New York State tax on the income because it related to a job she held in the state.
A Typical Situation
In the Matter of Vora, the taxpayer had been a New York resident employed at a school. Her employment was terminated via a separation agreement in June 2019. During 2020, she was a resident of Hawaii and Washington State when she received severance payments from the school. She filed a 2020 New York nonresident return showing minimal income. Upon audit, the state adjusted her income subject to tax to reflect the severance she received from the school as New York source income. The administrative law judge (ALJ) hearing the case upheld the state’s assessment, noting that New York Tax Law Section 631(b)(1)(F) explicitly provided for the taxation of termination payments received by nonresidents related to former employment in the state would be New York source income.
Insight From Forvis Mazars: While New York Tax Law Section 2010(5) makes clear that this decision does not set precedent, it is consistent with the findings in other cases and New York’s taxation of a whole host of income received by nonresidents, including compensation received by nonresidents working outside of the state by operation of the convenience of the employer rule, deferred compensation to the extent not prohibited by federal law, and severance relating to employment in the state.
How Forvis Mazars Can Help
Our Washington National Tax Office team can help you navigate the complexities of the New York withholding and income tax obligations regarding these types of payments and consider your particular facts to help identify potential strategies for mitigation. If you have questions or need assistance, please contact a professional at Forvis Mazars.