NYC taxes

[ilea]

I have a client who worked/retired from a job in NYC. Has since (2 years ago) moved to a state with no income tax. Client has been receiving a small salary from NY company as part of severance package. For 2010 - small salary, HUGE RSO's. I understand the the total of salary + RSO's is taxable to NY state. If I am reading the NYC instructions correctly, there is no tax liability for the city on either the salary or the RSO's because the client did not reside in the city of NY at all during the year.

Am I correct in not calculating a NYC tax? Thanks.

[mwcpa]

New York City has an income tax on "residents," the non resident tax on "wages" went away many years ago.

Be careful of the NY "accrual" rules....

"If, as a New York State nonresident or part-year resident, you received stock options and the options you received are attributable to services performed in New York State, some or all of the federal income related to the options may be included in New York source income."

[ilea]

I got the part about NY state - she does have liability there. Didn't think she'd have NY city liability, but didn't know if I was missing anything. Thanks.

[mwcpa]

did she ever live in NYC? just working in NYC does not create a tax obligation to NYC, it's just for "residents."

[ilea]

yes, she lived in NYC a couple of years ago. she lived/worked in NYC. retired about 1 1/2 years ago-2008. moved to WA in 2008. Options vested in 2010. not a NYC resident in 2010. W2 grossed up about $500,000 for RSO's in 2010. Company withheld NYC tax (about $37,000). RSO's were earned when she was a NYC (2007-2008) resident but granted/exercised (2010) she was NOT a NYC resident. I see NY state considers it NY income because she earned it while she was a NY resident. But, does New York City consider it taxable? I'm thinking that because she was not a NYC resident when the RSO's became income, there is no NYC tax.

to simplify, my question is, does NY city tax residents on when income is earned or when it is received?

[mwcpa]

...... new york has an accrual rule ......

see this NY publication
www.tax.ny.gov/pdf/publications/income/pub88.pdf
and
TSB-M-07(7)I

these can provide some guidance.... given the fact that NY is bankrupt, be careful.... NY is very aggressive when it comes to bringing income into NYS....

[ilea]

don't want to beat this horse to death, but...

I know we have NY state tax. RSO's exercised when New York city resident. sold 2010 - not NY city resident. LaCerte is calculating NY state tax (I get that - state she has to pay). company withheld NY city tax. LaCerte is not calculating city tax. She was not a resident of NY city when stock sold. I am thinkin no city tax which is getting her about 35k refund since company withheld city tax. Any problem you can see? don't want that kind of error coming back to haunt me.

[mwcpa]

you are "thinkin" wrong....

from NYS form it-360.i

"If you moved out of New York City, you must include on Form IT‑360.1 any item of income, gain, loss, or deduction which, under an accrual method of accounting, would be
reportable at the time you changed your residence. This includes income or gain you elected to report on the installment basis. You must also accrue to New York City items of tax preference subject to the minimum income tax (Form IT‑220) and the total taxable amount of lump‑sum distributions subject to the separate tax on lump‑sum distributions (Form IT‑230).

Accruals are not required if you file a bond or other acceptable security in an amount equal to or greater than the amount of additional New York City resident tax that would be due if the accrued items were included on your part‑year resident return, and you include the accrued amount on your New York State return for subsequent tax years as if no change in resident status occurred. If you elect to file a bond instead of accruing income, you will need Form IT-260, New York State and New York City Surety Bond Form — Change of Resident Status — Special Accruals. If you elect to file other acceptable security instead of accruing income, you will need Form IT-260.1, Change of Resident Status — Special Accruals. "

from IT-260.i

"You are not required to make the special accruals on your New York State return in the year that you change your resident status if: 1) you file a bond or other acceptable security in an amount equal to or greater than the amount of additional New York State income tax that would be due if the accrued items were included on your New York return, and 2) you include the accruable amounts as received on your New York nonresident return for subsequent tax years as if no change of resident status occurred (sections 639(d), 639(h), 1307(c), and 1307(f) of the Tax Law). If you were a New York City resident prior to your change of residence, you must continue to pay New York City resident tax on the accruable amounts reported on your future New York State nonresident returns."

The way I understand the law...

1. you "accrue" the amounts that are "fixed" and "determinable" on the day you move
2. you post a bond
3. if you report the accrued amounts when received then you pick up the same amount on it-360.1 that you pick up on it-203.

Lacerte does not automatically prepare an it-360.1, you need to manually drop in the numbers.

New York will look at a 35K refund very carefully, especially if NYC tax is withheld and no NYC tax is reported.... they will send an inquiry as to why...