Deferred Compensation After Moving Out of New York or California

Does New York still tax my deferred bonus after I move out?

Usually yes. A deferred bonus paid for work you did in New York stays New York-source income when it reaches you as a nonresident. New York taxes the share that matches your New York workdays, and you report it on the nonresident return, Form IT-203.

New York's regulation (20 NYCRR 132.18, quoted in TSB-M-06(5)I) sources an employee's pay by the ratio of New York workdays to total workdays. Moving away does not change where the work was done. The Form IT-203 instructions send wages earned in and out of New York to Form IT-203-B, Schedule A, and the result goes on Form IT-203, line 1. New York works out tax on all your income as if you were a resident, then charges the New York share, so the payout is taxed at the rate your whole income reaches.

Four things decide your case:

• Where you did the work in the years that earned the payment, counted under New York's convenience of the employer rule (below).
• What kind of payment it is, and whether you still work for the firm. Severance, non-compete pay and deferred pay that arrives after you have left the job use a separate four-year formula.
• Whether a federal law blocks the tax. 4 USC 114 protects some deferred pay, but only installment payouts over at least 10 years or life, and certain excess-benefit plans.
• Whether the bonus was already fixed before you moved. Income accrues once the amount is fixed and determinable and you have an unrestricted right to receive it (IT-360.1 instructions). Then New York may tax all of it as resident-period income under its special accrual rule, not just the workday share. The Form IT-203 instructions give the example of a guaranteed bonus awarded before a move and paid after it. You can file a bond (Form IT-260) instead of accruing, and then report the item in later years as if you had not moved. See fund manager moving to Florida or Texas.

Gather the plan document, the award letters, the payout schedule, every W-2 from the firm and a day-by-day record of where you worked. Allocating a payout across several earning years and claiming the right credit is where professional judgment usually comes in (help for fund employees).

New York City tax is a resident tax. Deferred pay received after you leave the city is outside it, unless it accrued while you lived there; the move-year city tax is figured on Form IT-360.1.

How is a bonus earned over several years split into New York days?

Which split you use depends on whether you still work for the firm when the payment arrives. Still employed: New York workdays over all workdays in the earning period. Job ended: the four-year pay ratio (below).

A New York workday share is New York workdays divided by all workdays in the period that earned the pay. Weekends, holidays, sick days, vacation and leave are left out of both counts.

Schedule A of Form IT-203-B uses these same categories, one schedule for each job. It counts the days of the current year. For a payout earned in earlier years, the IT-203 instructions let you allocate differently if you submit a separate schedule showing complete details, here the earning-year workdays and the calculation.

The earning period is not settled. New York's published guidance does not say which years to use for a deferred bonus that vests over several years. A reasonable reading is the year or years whose work earned the award, often the bonus year alone. For stock options and restricted stock, Form IT-203-F uses the period from grant to vest (IT-203-F instructions). That rule covers stock awards only; using it for a cash deferral is an analogy, not a rule. Read the plan's own wording on what service the award rewards, and keep workday counts for every year it could cover.

Do days worked from home in another state count as New York days (the convenience of the employer rule)?

Usually yes. If your assigned or primary office is in New York, New York counts a normal workday at home as a New York workday. The exception is work that the employer's needs, not your own convenience, required you to do outside the state.

This is the convenience of the employer rule. The IT-203-B instructions say out-of-state duties must be ones that "by their very nature" cannot be done at the employer's office. A normal workday means doing the usual duties of your job. Answering an occasional call or email does not make a day a workday; such days at home are nonworking days (TSB-M-06(5)I).

This continues after the move. If you keep working from your new home for a New York office, those normal workdays are usually New York workdays too, unless the employer's needs require the work there. So pay and deferrals earned after the move can still be New York-source.

When does a home office count as a real employer office?

If the firm gives you a desk at its New York office, one of the six secondary factors below is already missing. A home office escapes the rule only if it is a bona fide employer office. Under New York's current test, it must meet either:

1. The primary factor: the job needs specialized facilities that cannot be provided at the employer's office but are at or near your home; or
2. At least 4 secondary factors and 3 other factors.

The rule follows the deferred pay

Because deferred pay is split by the workdays of the years that earned it, home days counted as New York days in those years raise the New York share of the later payout too. A move does not reset that history. New York audit guidance notes that convenience days count for allocation even though they are not days of physical presence (Nonresident Audit Guidelines).

Does it matter whether the payment comes before or after I leave the firm?

Yes. The formula changes (workdays while employed, the four-year pay ratio after), and some plans become protected. In TSB-A-20(8)I, New York concluded that payments to nonresidents after termination of employment from a plan kept solely to give benefits above the qualified-plan limits were protected retirement income. Payments from the same plans while still employed were taxable New York-source wages, with New York withholding.

An advisory opinion binds New York only for the firm that asked for it, and only on its facts. It shows how New York reads the federal rule; it does not decide your plan.

Does federal law (4 USC 114) protect nonqualified deferred compensation from my old state?

Sometimes, and less often than people hope. 4 USC 114 bars a state from taxing a nonresident's "retirement income". For a nonqualified deferred compensation plan (section 3121(v)(2)(C) of the Internal Revenue Code: broadly, any arrangement that defers pay other than a qualified plan such as a 401(k)), the payment counts only if it is either:

• part of a series of substantially equal periodic payments, made at least once a year, for your life or life expectancy (or joint lives with a beneficiary) or for at least 10 years; or
• a payment after termination of employment from a plan kept solely to provide benefits above federal limits on qualified plans, such as the 401(k) deferral limit.

TSB-M-10(9)I confirms that New York's rule for termination and non-compete income does not reach payments from plans 4 USC 114 protects.

A trap for the home-state credit: if you pay your old state tax on a payment 4 USC 114 protects, your home state may refuse a credit for it, because that tax was not properly owed. New York's audit guidelines say this for New York residents. A refund claim in the state that taxed it may recover that tax if filed in time: in New York, three years from filing or two years from payment, whichever is later; in California, four years from the original due date (four years from the filing date if the return was filed in the extension period) or one year from the overpayment, whichever is later.

How does California tax deferred pay and bonuses after I leave?

California sources wages where the services were performed. FTB Publication 1031 says neither the employer's location, where payment is issued nor where you are when paid changes that source. A deferred bonus for work done in California stays California income after you move, in the share that matches your California work. California, too, applies the rate on all your income to the California share.

• No convenience rule. California's published sourcing follows where you actually worked, so days worked outside California are not California days.
• Same federal list. FTB Publication 1005 repeats the 4 USC 114 conditions for 3121(v)(2)(C) plans. Publication 1031 adds that lump sums from most nonqualified plans, from California sources, stay taxable to nonresidents.
• Severance and non-compete pay. Publications 1031 and 1005 do not address them directly, so their source is unsettled.

Nonresidents report California-source income on Form 540NR.

I live in Connecticut or New Jersey now: which state gives the credit?

Your home state gives the credit, not the state where you used to work. The credit is limited to income both states tax under their rules, so a gap can leave real double tax.

Connecticut and New Jersey each apply a reciprocal convenience rule: they use it only on nonresidents whose home state has one, such as New York. New Jersey's took effect for tax years from January 1, 2023 under P.L. 2023, c. 125 (New Jersey FAQ). This matters if your employer's office was in Connecticut or New Jersey and you lived in New York.

Severance, garden-leave or non-compete pay after the move: which state?

New York taxes a nonresident on income related to work previously done there, including termination agreements and covenants not to compete, under Tax Law 631(b)(1)(F). New York's IT-203-F example applies the same rule to deferred pay received after the job ends: extra pay in 10 equal yearly installments that start after employment ends. That example does not discuss 4 USC 114; ten or more substantially equal yearly payments under a deferral plan can be protected retirement income (above), so check that first. An employee uses a ratio, not current workdays (TSB-M-10(9)I):

1. Add your New York-source pay from that job for the part of the year before termination and the three tax years before it.
2. Divide by your total pay from that job in the same period. Use a shorter period if you worked there less long.
3. Multiply the payment received this year by that ratio.

You report it on Form IT-203-F, Schedule A, with Form IT-203. If the payment comes in installments, New York's example says you file a New York return with Form IT-203-F for each year a payment arrives (IT-203-F instructions).

Garden-leave pay is unsettled. If you stay on payroll during garden leave, the pay may be ordinary wages for that period, allocated by workdays, rather than termination income. Days on leave are left out of workday counts, which makes the result depend on the agreement's wording. TSB-M-10(9)I and the Form IT-203-F instructions do not address it.

The federal treatment of these payments is covered in leaving a fund with unvested pay and carry.

My employer withheld for the wrong state, or both: how do I fix it?

Ask the employer for a corrected W-2, Form W-2c, if the state wages or withholding are wrong. Then file a return in each state that withheld, to claim any refund, and claim the credit in your home state for tax properly owed elsewhere.

New York expects employers to withhold on termination payments (TSB-M-10(9)I) and, in one advisory opinion, on deferred pay paid before termination (TSB-A-20(8)I). Too little withholding can leave a large balance due with the New York return on April 15; estimated payments may be due during the payout year, see estimated tax in a big bonus year. Too much is refunded only through a filed return. New York's limit for a refund claim on an amended return is three years from filing or two years from payment, whichever is later. The employer's side is in employees in another state.

Before the move: payout timing and the workday records New York checks in an audit

You usually cannot move a payout date to suit a move. Under section 409A, payment dates are fixed by the plan, and changing them is tightly limited; see deferred bonus at a fund manager. What you can control is the evidence.

• A daily work-location log for every year that could earn a later payout, not just the move year.
• Support for each day: calendar entries, travel bookings, building-access records and phone or device records.
• Proof of any employer necessity for days worked outside New York, in writing from the employer.
• The plan document and award letters, showing the service period, payout form and whether the plan is an excess-benefit plan.
• Termination, severance and non-compete agreements, with the dates and amounts paid.

New York audits look at where you were on each claimed day and can test the log against these records (Nonresident Audit Guidelines).

Which returns do I file in each payout year?

You may need a return in the old state for every year a taxable payment arrives, plus your home state's return.

Ten years of installments that 4 USC 114 does not protect can mean ten New York returns.

Example

All figures are in US dollars and illustrative.

A deferred bonus paid after a move to Florida

• Year 1: You live in New York and work at a New York fund office. You earn a bonus, of which $900,000 is deferred and stays subject to forfeiture until it is paid in year 3. Of your workdays that year, 80% were in New York; the rest were business trips the firm required.
• Year 2: You move to Florida and keep working for the firm.
• Year 3: The $900,000 is paid in one sum.

New York-source income in year 3: $900,000 × 80% = $720,000, on Form IT-203 with a schedule showing the year-1 workday split. Florida has no income tax, so there is no credit to offset it. Year-2 pay is New York-source too if your Florida days were normal workdays for the New York office.

The same bonus while living in Connecticut

You live in Connecticut throughout. New York taxes the same $720,000. Connecticut taxes all $900,000 as a resident and allows a credit for the New York tax on the $720,000, including the share from home days, up to Connecticut's own tax on that share of income.

A severance payment

You leave the firm and receive $300,000 of severance the next year as a Florida resident. Over the part of the termination year before you left and the three years before it, your pay from the firm was $2,000,000, of which $1,500,000 was New York-source. The ratio is 75%, so $225,000 is New York income on Form IT-203-F.

Different for you?

• Your deferred pay comes in ten or more yearly installments, or from an excess-benefit plan: whether 4 USC 114 applies depends on the plan's terms. Get the plan reviewed before filing (fund employee tax help).
• You live in Connecticut or New Jersey and both states tax the same payment: the credit can fall short; have both returns prepared together (fund employee tax help).
• You are unsure when New York stopped treating you as a resident: see fund manager moving to Florida or Texas.
• You were a partner, not an employee, or your income comes on a K-1: see fund manager moving to Florida or Texas and state returns for fund investors.
• Your question is carried interest after a move: see the carried interest three-year rule.
• You need to know when the bonus is taxed federally: see deferred bonus at a fund manager.
• You are moving to Canada with deferred pay or stock awards: see stock awards and pay after a move.
• You are on a visa or green card and leaving the United States: see leaving the US.
• New York is auditing your workdays or residency: representation starts with the records above (fund employee tax help).