Source: Vialto
The New York State (NYS) Department of Taxation and Finance (Department) has begun issuing audit notices to employers for the 2020 through 2022 tax years for state and city income tax withholding and Metropolitan Commuter Transportation Mobility Tax (MCTMT). Given the recent activity and informal conversations we’ve had with the Tax Department, NYS has renewed its focus on remote workers.
We have already seen additional scrutiny on remote workers via personal income tax return reviews or audits for the 2020 and 2021 tax years and expect NYS to continue its detailed review at a larger scale on NYS employer withholding tax audits.
With the commencement of audit notices being issued for the 2020 through 2022 tax years, we anticipate that NYS will renew its focus on remote workers and scrutinise employees that previously had a NYS work location which has now shifted elsewhere. Since a NYS withholding and MCTMT tax audit encompasses all employees paid out of the legal entity selected for audit and not just NYS employees, NYS can easily identify changes in employee work locations or those who had NYS wages previously reported to inquire about such changes. The electronic payroll data requested for an employer’s workforce includes a field for “Telecommuting Indicator” and the pre-audit questionnaire (NYS Withholding Tax TAA Field Audit Questionnaire (22 questions)) requires the employer to respond to a series of questions including whether the employer maintains work from home employees or telecommuters, to which office or work location remote work employees report into or which cost centre the employees are associated with, and if NYS taxes were withheld. The burden of proof is placed on the employer to substantiate that NYS tax was properly withheld and timely remitted to the State.
NYS generally selects a sample year within the audit period and the results from the sample year will be extrapolated to the remaining audit years. Employers should take this into consideration when selecting a sample year as any significant events impacting the payroll such as an upgrade or change to the payroll system, acquisition or merger, or years with large number of employee transfers in/out of NYS, significant equity events, or large-scale payroll adjustments could skew the audit results.
For more information, please contact:
Lucy Ni
International China Market Americas Lead
+1 206 962 7753
Winnie Kwok
Senior Tax Manager
+1 713 292 4729