Signing bonus Local/State taxes when moving for a job

[phw]

I want to check my assumptions about state and City taxes owed on a signing bonus.  Please let me know of any experience you have with the following:
We currently live in NYC for fellowship, where we pay about 8% income tax to the state and 4% to the City.  We are leaving NY on July 29th, traveling for fun for a month+, and then moving permanently to Alaska in mid-September for a hospital job where we will pay 0% in state and local income tax.    The contract we've been offered states that the $30k signing bonus will be paid "not more than 30 days" from the time the contract is signed, which will be soon, i.e. before we leave NY.  I think this is bad for us  because it would mean that we will owe NY state/city 12% of $30k.  If we tell the hospital to hold off on sending the bonus until after we vacate NY, but not necessarily until we live in AK, then we will owe 0%.

Is this correct?

Or, is there a *legal* way to take the signing bonus before July 29th (living in NY) and not pay the NY tax on it?  (Assuming "no") Is it enough to vacate NY, but still not have an official domicile somewhere else (traveling), in order to not pay state&city tax on the bonus?

It would be really nice to have this money sooner, but we don't *need* it.

 

edit to add:  The Hospital has stated that this money will be accounted for on our W2/1040, not paid as 1099 income (bummer).  They will withhold a "standard" 25% for federal but they are not going to withhold any state taxes, that's on us to pay.

[ko]

Ya, I was going to say that when I graduated from business school, I got a signing bonus paid in March before I graduated while living in a state with income tax, but my full-time position for which I was getting the signing bonus was in a state with no income tax and started in August (so we weren't moving there until July). The new employer withheld no state income tax when they paid my signing bonus in March and it was reported on my W2 at the end of the year as income earned in my new state. Hope that helps.

[jfoxcpacfp]

Good strategic thoughts. NY is the worst tax-grabbing state, and NYC is no better. They will hound you for years if there is a chance you would have nexus on any income earned or paid while a resident (not the medical kind lol) or visitor. I recommend you ask them to delay the bonus until you move and begin setting up domicile in AK as soon as possible. Will you sign a lease or buy a house there before July? With the mailing address, you can change your driver's licenses, register to vote, maybe find a church if you are so inclined. I think you start the process, if possible, even if you have to get a PO box or use the hospital's mailing address for awhile. All of these activities are used to prove domicile. MAKE SURE that the bonus check has an AK address on it, not NY.

Living in AK sounds like such an adventure!

[phw]

ko wrote:

I got a signing bonus paid in March....and started in August (so we weren’t moving there until July). The new employer withheld no state income tax when they paid my signing bonus in March and it was reported on my W2 at the end of the year as income earned in my new state. Hope that helps.

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ko, do you mean that despite receiving the bonus in your previous State, you didn't pay income tax to that state?  I assume I *could* do this, as my W2 at the end of the year doesn't have dates on it, but I also assume this isn't "kosher" and if NYS and NYC come after me they could make a case.

This is what you're advising, right Johanna?  Get it documented that I was elsewhere before getting the $ or risk the tax-man?

[jfoxcpacfp]

phw wrote:

ko wrote:

I got a signing bonus paid in March….and started in August (so we weren’t moving there until July). The new employer withheld no state income tax when they paid my signing bonus in March and it was reported on my W2 at the end of the year as income earned in my new state. Hope that helps.

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ko, do you mean that despite receiving the bonus in your previous State, you didn’t pay income tax to that state?  I assume I *could* do this, as my W2 at the end of the year doesn’t have dates on it, but I also assume this isn’t “kosher” and if NYS and NYC come after me they could make a case.

This is what you’re advising, right Johanna?  Get it documented that I was elsewhere before getting the $ or risk the tax-man?

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I'm not saying to set up another household while you are still living in NY. They would be able to successfully collect taxes on that income if you were physically located in the state when the check was cut. But when you leave the state, close the door behind you. You should be able to document that you are citizens of AK. Don't take the risk with NY - they take nexus arguments to a whole new level.

[ko]

phw wrote:

ko wrote:

I got a signing bonus paid in March….and started in August (so we weren’t moving there until July). The new employer withheld no state income tax when they paid my signing bonus in March and it was reported on my W2 at the end of the year as income earned in my new state. Hope that helps.

Click to expand…

ko, do you mean that despite receiving the bonus in your previous State, you didn’t pay income tax to that state?  I assume I *could* do this, as my W2 at the end of the year doesn’t have dates on it, but I also assume this isn’t “kosher” and if NYS and NYC come after me they could make a case.

This is what you’re advising, right Johanna?  Get it documented that I was elsewhere before getting the $ or risk the tax-man?

Click to expand...

I lived in Massachusetts in March while I was finishing school at the time I was paid my signing bonus. I then moved to Texas in July to start my new job in August. When I received my signing bonus in March, my future employer withheld 25% for federal income taxes and nothing for state income taxes. When I received my W2 at the end of the year, the signing bonus showed as Texas income, not Massachusetts.

I'm not sure if this was the right way for my employer to handle this but it was how it played out. One other aspect to consider is that for most states (but not all), tax is due to the state where the income is earned, not where the employee lives. I'm not a tax expert so certainly consult one because New York may have different state laws, but for much of my career I've lived in one state and worked on projects for different clients in other states, and I've always had to pay state income tax to the state where the income was earned (i.e. where the client was based and where I worked for them), not where I lived. It's possible that my employer from the signing bonus considered my signing bonus as income earned for "work" in Texas, not Massachusetts, and accordingly withheld Texas state income taxes (none) and reported the income on my W2 as Texas income.

Again, I'm not a tax expert, so take this for what it's worth.

[jfoxcpacfp]

Technically, MA could have argued for you to pay tax on the amount paid to you while you were domiciled there, particularly since you were moving to a no-tax state. The Statute of Limitations on "ASSESSMENT" is three years from the date filed or the 15th of April, whichever is later. The Statute of Limitations on "COLLECTION" is ten years from the date of assessment, so I wouldn't assume you are out of the woods. Anecdotal evidence, anyway, and you'll probably never hear a peep from your old home state.

My advice to phw was specific to NY residents, however. They are, quite simply, notorious when it comes to assessing and collecting income taxes. He just needs to protect himself from having to argue the point, even though he may never cross their radar after the move.

All states are hungry for taxes. They lose a lot of revenue to sales and use taxes because of the internet. At the same time, the internet has allowed them to figure out lots of creative new ways to repatriate lost revenue.

[phw]

jfoxcpacfp wrote:

My advice to phw was specific to NY residents, however. They are, quite simply, notorious when it comes to assessing and collecting income taxes.

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Thanks for the counsel, Johanna.  I have read several news stories agreeing with your opinion on NYS and NYC's ability to track down income tax, and heard similar anecdotes from my father.  They tried to tax his military pay during Vietnam, suffice it say he was not living in or being paid in NY, but they still tried and he had to prove he was living elsewhere.