New York Releases Guidance on the 14-Day Rule
September 12, 2012
Recently, New York State released TSB-M-12(5)I explaining the Tax Department’s existing policy concerning employer withholding on the wages paid to certain nonresident employees whose primary work location is outside of New York State and who are expected to work 14 days or fewer in New York State during the calendar year. Under New York law, an employer maintaining an office or transacting business in New York State must deduct and withhold tax from employee wages during each calendar year and the amount withheld must be substantially equivalent to the tax reasonably estimated to be due from inclusion of wages in the employees’ New York AGI or New York source income. Hence, for nonresident employees who perform services partly in and partly outside the state, only wages for services performed in New York are subject to withholding. This particular TSB pertains to wages paid to nonresidents who work 14 days or fewer in New York State (14-day rule).
Under this rule, an employer will not be penalized for not withholding taxes on New York State wages paid to a nonresident who performs services both in and out of New York State if these conditions are met:
- the employee is assigned to a primary work location outside of New York State;
- the employer reasonably expects that the employee will work in New York State for 14 days or fewer in the calendar year;
- the employee does not work in New York State for more than 14 days; and
- the employee’s compensation is not listed in Exceptions to the 14-day rule described below.
Notably, if the employer reasonably expects the employee to work in New York State more than 14 days during the calendar year, the 14-day rule is not applicable. Additionally, any part of the day spent in New York State counts as a full day, but time spent for the sole purpose of job-related training, seminars, conventions, professional development, etc. do not count. Moreover, the 14-day rule does not apply to the following types of compensation:
- Compensation paid to nonresident traveling salespersons or other employees when the compensation depends entirely on the volume of business transacted by them.
- Compensation paid in one year that is related to services performed in a prior year; for example, deferred compensation and compensation from non-statutory stock options.
- Compensation paid to nonresident public speakers performing services in New York State. This includes, but is not limited to, services in the form of a speech, presentation, or personal appearance.
- Compensation paid to nonresident athletes performing services in New York State. This includes, but is not limited to, wrestlers, boxers, golfers, hockey players, basketball players, football players, tennis players, baseball players and other athletes, as well as referees, coaches and trainers.
- Compensation paid to nonresident entertainers performing services in New York State. This includes, but is not limited to, actors, singers, musicians, dancers, circus performers, writers, directors, producers, set designers, any other person appearing on television, radio, the stage, in a night club performance or hotel show, and compensation to any person whose performance in New York State is recorded or filmed.
The full text of the TSB can be found here.
If you have any questions regarding this memorandum or New York State’s 14-day rule, please contact your tax advisor.