The New York Department of Taxation and Finance has issued guidance regarding the income tax changes provided for under the recently enacted New York State 2018-19 Fiscal Year budget bill. Guidance includes clarification of the definition of resident individual for New York State income tax purposes, confirms the change in employer wage reporting as of first quarter 2019 and explains the expansion in the youth employment tax credit.

Definition of resident individual for NYS income tax purposes

For tax years 2019, and with the exception of individuals active in the military, an individual who maintains a permanent place of abode in New York and spends more than 183 days of the tax year in the state are residents whether or not they are domiciled in New York. (S7509-C/A9509-C, Part O.)

Currently, a resident individual is defined as an individual who is not domiciled in New York State but maintains a permanent place of abode in the state and spends more than 183 days of the tax year in New York (unless in active service in the military).

The same clarification is made to the definition of resident individual for New York City income tax purposes.

According to the governor's FY 2019 executive budget document (page 17), the change clarifies the definition of statutory residency in cases where a taxpayer changes domicile during the year. Counter to longstanding policy, recent administrative law judge interpretations have held that in such cases statutory residency does not apply if the taxpayer changing domicile does not spend more than 183 days in New York during the non-domicile period, creating unfairness in comparison with a statutory resident who is not domiciled in New York during the year.

No change in income tax withholding requirements. Per a representative of the Department's Office of Counsel, the change in residency requirements does not affect an employer's responsibility to withhold New York State and City income tax from the New York source income of residents and nonresidents. For example, the change does not affect the requirement to withhold on wages paid to certain nonresident employees who are expected to work more than 14 days in New York State during the calendar year. The change was only a clarification to income tax liabilities when an individual is a part-year resident.

Quarterly reporting of income tax withholding details

The Department's guidance confirms that effective with the first quarter of 2019 (report due April 30, 2019), employers must report withholding tax information per employee on a quarterly, rather than annual, basis. (S7509-C/A9509-C, Part I.)

As we reported previously, employers currently report quarterly state unemployment insurance (SUI) detail to the New York State Department of Taxation and Finance that includes each employee's name, Social Security number and taxable wages. On an annual basis, on the fourth quarter combined return (Form NYS-45), employers report per individual employee the annual total federal gross wages that were subject to state/local income tax withholding for the year and the annual total amount of New York State, New York City and Yonkers tax withheld. As a result of this reporting, employers are not required to submit Forms W-2 to the Department.?

Effective in 2019, employers will be required to report the state/local income tax withholding details (wages and amount withheld) by individual employee on a quarterly basis just was SUI wage detail is reported. The governor's FY 2019 executive budget document (page 18) states that the quarterly reporting of withholding tax information will help to reduce fraudulent tax refund claims.?

All employers are required to file Form NYS-45 electronically over the Department's Withholding Tax Web File system. For more information on the electronic reporting requirement, see the Department's website.

Employer tax credit for hiring disadvantaged youth increased

A program administered by the New York State Department of Labor (DOL) allows an employer a tax credit for hiring certain unemployed, disadvantaged youth, ages 16 to 24, who live in New York.

According to the governor's FY 2019 executive budget document (page 16) the program, which focuses on the following cities and towns: Albany, Buffalo, New York, Rochester, Schenectady, Syracuse, Mount Vernon, New Rochelle, Utica, White Plains, Yonkers, Brookhaven and Hempstead, has been a success and has helped connect 31,000 youths to jobs.

As a result of the program's success, the program is reauthorized for an additional five years, and for tax years beginning on or after January 1, 2018, the budget increases the credit amounts by 50%, from $500 ($250 for part-time workers) to $750 ($375 for part-time) per month for up to the first six months, and from $2,000 to up to $3,000 for each full-time employee who is employed for an additional six months to a year (an additional $1,500 for part-time).

For tax years beginning on or after January 1, 2019, changes are made in how the program is administered. Qualified employers will continue to submit applications to participate in the program to DOL. If approved, the employer will receive a preliminary certificate of eligibility from DOL that will state the maximum amount of tax credit that the employer may be allowed to claim and the program year in which it may be claimed.

Qualified employers will be required to submit an annual report to DOL. The report is due on or before January 31st of the calendar year after the payment of wages to a certified youth. The report must show that the employer has satisfied all eligibility requirements and must provide all the information necessary for DOL to compute a final credit amount. If DOL approves the report and eligibility for the credit, it will issue a final certificate of tax credit to the qualified employer.

Employers that file a calendar-year tax return may claim the credit for the tax year for which the final certificate of tax credit was issued. If the employer is a fiscal tax year filer, it may claim the credit on the tax return for the fiscal year that includes the date that the final certificate of tax credit was issued.

For tax years beginning on or after January 1, 2019, qualified employers claiming the credit must attach the final certificate of tax credit issued by DOL to their tax return.

For program year 2018, businesses can earn tax credits of up to $7,500 for eligible youth starting work between January 1, 2018 and December 31, 2018. For more information on this credit, see the DOL website. (S7509-C/A9509-C, Part R.)

The budget bill also extends the "hire a veteran" credit through tax year 2020. The credit is available to employers for hiring and employing, for not less than one year and not less than 35 hours each week, qualified veterans. To be eligible, a qualified veteran must now begin employment prior to January 1, 2020. (S7509-C/A9509-C, Part Q.)

For more information on this credit, see the Tax Department's website.

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