Employer’s responsibility for withholding

The Tax Law requires that employers withhold from their employees, so far as practical, an amount substantially equal to the tax reasonably estimated to be due from the amount of the wages included in the employees’ New York adjusted gross income or New York source income [Tax Law § 671(a)(1)].

The Tax Department’s policy concerning the withholding requirements for employers who paid deferred compensation or compensation from nonstatutory stock options to a nonresident employee that performed services both inside and outside New York State during the compensable period is explained below. The requirements described in this section apply to compensation that is considered wages for federal income tax withholding purposes:

compensation earned in one year and paid in a later year (deferred compensation including but not limited to bonuses, severance, termination pay, and so on), or

compensation from nonstatutory stock options.

The policy addresses what factors and statements an employer should consider in determining what the reasonable estimate of withholding tax due should be.

Employers are required to withhold on 100% of the deferred compensation and compensation from nonstatutory stock options if any part of the compensation is attributable to services performed in New York State, unless one of the following applies:

Form IT-2104.1 is filed with the employer by the employee for the deferred compensation or compensation from nonstatutory stock options reflecting the proper allocation for the income.

The employer has a Form IT-2104.1 on record for the employee for the current year, and the employee is still being paid compensation for services currently being performed in New York State and the deferred compensation or compensation from nonstatutory stock options is less than $1,000,000 for the payroll period. In this case, the employer may withhold using the employee’s estimated percentage of services performed for the current year.

The employee is no longer performing services in New York State or is no longer employed by the employer, and the deferred compensation or compensation from nonstatutory stock options is less than $1,000,000 for the payroll period. In this case, the employer may withhold using the employee’s estimated percentage of services contained on the last Form IT-2104.1 submitted by the employee, on which the employee estimated a percentage of services performed in New York State of greater than zero percent. (A prior Form IT-2104.1 submitted pursuant to [1] above for the specific purpose of withholding on deferred compensation or compensation from nonstatutory stock options will not be considered the last Form IT-2104.1 on file.)

The employer has adequate records to determine the correct amount of wages or other compensation attributable to services performed in New York State or in this case, the employer may compute the withholding based on that amount. The employer must maintain a record of how it computed the percentage of compensation subject to New York State withholding. Adequate records include, but are not limited to, Form(s) IT-2104.1 on file for the entire compensable period.

For purposes of (1) through (4) above, an employer may rely on a Form IT-2104.1 submitted by an employee, provided the employer does not have actual knowledge or reason to know the certificate is incorrect or unreliable. For more information on Form IT-2104.1, see part K, Form IT-2104.1, New York State, City of New York, and City of Yonkers Certificate of Nonresidence and Allocation of Withholding Tax .

Note: Payments or distributions from deferred compensation plans that are not considered wages for federal income tax purposes and are reported on federal Form(s) 1099 are not subject to income tax withholding for New York State, New York City, or Yonkers income tax purposes, unless the payee requests withholding by filing Form IT-2104-P , Annuitant’s Request for Income Tax Withholding .