If a movie were ever made about New York state withholding requirements, it might be titled "It's Complicated." A good place to start might be a description of which type of income is subject to withholding - and before you answer, "All income," let's hear what the state has to say.

New York state tax law requires that employers withhold tax from all wages paid to residents regardless of where their services are performed and from wages paid to nonresidents for services performed within the state.

Tax must be withheld on compensation that is considered wages, such as tips, supplemental unemployment compensation benefits, deferred compensation and compensation from non-statutory stock options. However, with the exception of certain annuity payments, income that is reported on federal Form 1099 is not subject to New York state withholding tax. All wages paid to New York City and Yonkers residents are subject to city income tax withholding even if the services were performed outside these cities.

Withholding tax is typically done on a pay-as-you-go method: That is, tax is paid as income is earned or received throughout the year. As the base amount can be uneven or inconsistent, it is imperative that record keeping be timely and accurate or penalties may be incurred.

When making withholding-tax adjustments, note that the proportion of compensation paid for services rendered within New York state for services provided by a traveling representative —such as a sales agent or other employee earning commission-based compensation — depends directly on the amount attributable to services within New York state versus the volume of business transacted by the employee within and outside of New York state.

Regarding all other employees, the amount of wages attributable to services within New York state is that proportion of the total compensation which the total number of working days employed within New York state bears to the total number of working days employed both within and without New York state, exclusive of nonworking days.

Further, consider that effective January 1, 2020, if an employer pays supplemental wages — such as bonuses, commissions, overtime pay or sales awards — with regular wages but does not specify the amount of each, income tax should be withheld as if the total were a single payment for a regular payroll period. If supplemental wages are combined in a single payment, the amount of each must be specified. The income tax withholding method also partly depends on whether income tax is withheld from an employee's regular wages.

If income tax was not withheld from an employee's regular wages, the employer must add the supplemental and regular wages for the most recent payroll period, then figure the income tax withholding as if the total were a single payment. This is done by subtracting the tax already withheld from the regular wages and withholding the remaining tax from the supplemental wages.

Sound complicated? It is. Be sure to get expert guidance as you set up your payroll system to make sure you're doing it right.


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