By Laura Johnson, EA

The state of New York has a reputation for being aggressive about New York source income. Anyone with a permanent place of abode within the state, for example, is probably aware of triggering residency taxation by spending more than 183 days in the state and is carefully counting, and recording days spent in the state.

What you may be less familiar with are New York’s rules regarding stock-based compensation granted while a resident of New York, or while working within and outside of New York, but received when the taxpayer is no longer a New York resident. Keep your calendar up to date. Days are going to matter. 

Typical Scenario
The typical scenario goes something like this. You were a New York resident and received stock options. You then move to Massachusetts some years later. While a non-resident of New York, you exercise and sell the options. You include in taxable income, compensation from the sale. You pay tax on the compensation to Massachusetts, your resident state. Because you were not a resident of New York and spent zero days in New York in the year of the sale, nothing to pay to New York, right? 

Wrong. 

New York allocates income from stock-based compensation on a different, and what may be a surprising, basis. New York source income for the year of exercise and sale will be determined by multiplying the compensation by the New York workday fraction. Basically, that’s the portion of days between stock grant and vesting that you worked in New York, even if those New York workdays were years ago.

What is the New York workday fraction?
NY Form IT-203-F-I tells us:

“The New York workday fraction is a fraction whose numerator is the number of days worked within New York State for the grantor during the allocation period and whose denominator is the number of days worked both within and outside New York State for the grantor during the allocation period. This includes days worked during the allocation period for a corporation related to the grantor and in consideration (in whole or in part) for the compensation from the option, stock, or right.”

The grant date, vest date, and exercise date will be determined based on the type of stock or options received.

Resident state should provide some relief
If you live in a state with an income tax, your resident should offer you a credit towards your state tax to the extent that New York taxes the same income. But you could lose out if you live in a state with no income tax.

At John Schachter + Associates, we help clients with New York source compensation plan for the unwelcomed tax hit and claim appropriate tax relief from resident states. Let us know if we can help you!