November, as the year-end approaches, is a key time for dual-state commuters in the New York metropolitan area (the Tristate) to carefully review their taxes and commuting finances. For remote and hybrid workers who live in Fairfield County, Connecticut, or in New Jersey and commute to Manhattan, New York...
November, as the year-end approaches, is a key time for dual-state commuters in the New York metropolitan area (the Tristate) to carefully review their taxes and commuting finances. For remote and hybrid workers who live in Fairfield County, Connecticut, or in New Jersey and commute to Manhattan, failing to properly handle New York State's strict tax rules and each state's tax credit system could mean an unexpected tax bill at year-end.
Recent public transit fare changes and the start of congestion pricing in Manhattan's Central Business District (CBD) have made it even more important to review fixed commuting costs. Here is a comprehensive rundown of the key points, from adjusting November tax withholding to avoiding double taxation and cutting commuting costs.
The "Convenience of the Employer" Rule Can Trip Up Remote and Hybrid Workers
For New Jersey or Connecticut residents who work for a company headquartered in New York, the first thing to check is the "Convenience of the Employer Rule" of the New York State Department of Taxation and Finance (NYS DTF).
Under this rule, even if an employee works from home in another state (NJ/CT), if that arrangement is for the employee's personal convenience rather than the employer's business necessity, all income earned on those workdays is classified as New York-source income and is subject to New York State income tax.
Even hybrid workers who go to a Manhattan office only two or three days a week must pay New York State tax on income from their work-from-home days unless they have written documentation showing that the company has officially designated that out-of-state address as a required place of work. It is therefore essential to check, using your November pay stub, whether New York State income tax is being withheld at the correct rate.
Avoiding Double Taxation: How to Use the Resident Credit for Taxes Paid to Another State
Paying income tax to New York State does not mean you will pay tax again to your home state (NJ/CT). Each state operates a "Resident Tax Credit" system that deducts taxes already paid to another state.
New Jersey residents: When filing the New Jersey income tax return (NJ-1040), claim the credit for taxes paid to other jurisdictions (NJ-COJ Credit) to receive a credit equal to the tax paid to New York State.
Connecticut residents: You can receive a credit for taxes paid to New York State through the Connecticut income tax return (CT-1040).
The "Lesser of" rule applies when calculating the credit. That is, the credit is capped at the lesser of the tax actually paid to New York State and the tax that would result from applying the home state's tax rate to the same income. Because New York's income tax rates are somewhat higher than those of New Jersey or Connecticut, most people can credit the full amount of tax paid to the other state and avoid double taxation. However, depending on income bracket and differences in local taxes, some additional tax may be owed to the home state, so it is safest to simulate the final settlement in advance.
Getting Year-End Paperwork in Order: Form IT-2104.1 and a Work Log
The key documents employees should have on hand to correct November payroll withholding and prepare for year-end tax settlement are as follows.
Form IT-2104.1 (New York State nonresident withholding allowance certificate): Nonresident employees must use this form to accurately calculate the percentage of days they physically work at an office in New York State and submit it to their employer.
Daily Work Location Log: In preparation for any future audit by the New York State Department of Taxation and Finance, keep a detailed day-by-day record of the 365 days of the year, noting New York office days, NJ/CT work-from-home days, business-trip days and vacation days.
Employer Necessity Letter: To avoid New York State taxation, you must have a letter proving that working from home is required by company policy and is not a personal choice.
Checking Transit Fares and Manhattan CBD Congestion Tolls
Along with tax adjustments, another item to address in November is the changed commuting cost structure in the metropolitan area.
MTA transit fares: The base fare is $3.00 for subways and local buses and $7.25 for express buses. With the OMNY payment system's 7-day rolling fare cap, regular transit is charged a maximum of $35 over seven days and express buses a maximum of $67, after which rides are free. Metro-North and LIRR commuter pass prices should also be checked in advance.
Manhattan CBD congestion toll (Congestion Relief Zone Toll): Passenger vehicles entering Manhattan south of 60th Street are charged a $9.00 toll with E-ZPass during peak hours (5 a.m. to 9 p.m. on weekdays). Passenger vehicles entering through the Lincoln Tunnel or Holland Tunnel receive a $3.00 Crossing Credit, but vehicles entering via the George Washington Bridge (GWB) receive no separate credit, so commuters should choose their routes carefully.
Pre-tax commuter benefits: By using an employer-provided pre-tax commuter account (Commuter FSA) to pay for transit and parking costs with pre-tax income, you can lower your taxable income and enjoy tax savings.