The client is a W2 employee for a nonprofit based in New York, but she works and resides in Asia. Prior to this role, she lived in Indiana for nine years and worked there for six months before joining the New York organization. She currently only has a residence in Asia and has never lived in New York. Where is she required to pay state taxes on the income earned from her work in Asia?
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Client works/lives out of country, employer is in a state other than where client lived before taking the position.
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In this situation, the client is a W2 employee for a nonprofit based in New York, but she resides and works in Asia. Here’s a breakdown of the state tax implications:
New York State Tax: Since the client is employed by a nonprofit in New York, the employer is likely required to withhold New York state income tax from her earnings, even if she is working and living in Asia. New York has a “source” rule for income tax, meaning that income is taxable in New York if it is earned from a New York employer, regardless of the employee’s location.
Indiana State Tax: The client lived in Indiana for nine years and worked there for half of the year before taking her job in New York. Indiana may not tax her income earned while she is living and working abroad in Asia, especially if she establishes residency elsewhere (as it seems she has done). However, if she is still considered a resident of Indiana for tax purposes (i.e., maintains a domicile there), she may need to file an Indiana tax return and report her income there as well, possibly receiving a credit for taxes paid to New York.
Asia Residency: Since the client has established a home in Asia, she will generally be subject to local tax laws in the country where she resides. Many countries have their own rules regarding taxation of foreign income, and it’s essential for the client to be aware of those and potentially file taxes there based on her residency status.
Recommendations:
– The client should consult a tax professional who has experience with international tax situations and the tax laws of New York, Indiana, and the country where she resides in Asia.
– Keep thorough records of her time worked and income earned in each state and country to ensure compliance with tax obligations.
In summary, the client will likely need to pay state tax in New York due to her W2 employment, and she should investigate her tax obligations in both Indiana and her country of residence in Asia.