When a New York resident becomes a nonresident partway through the year and later receives a year-end bonus based on her whole year's performance, is any part of that bonus taxed as resident-period income, and how much of it counts as New York-source income?

Plain-English summary

Petitioner, Susan Byrne Montgomery, was a New York resident from January 1 through February 28, 1990, and then changed her residence, becoming a nonresident for the rest of the year. During the resident period her only office was in New York City and she worked almost entirely within New York (except for four days). After the change of residence, she continued working for the same employer, performing services both within and without New York State. She filed a 1990 part-year resident return (Form IT-203). Beyond her regular 1990 salary, she also received a bonus determined at the end of 1990, based on her performance and the company's profitability for the whole year - an amount that was not yet determinable as of February 28, 1990, the date her residency changed.

The Department analyzed this in two separate steps, because the bonus raised two different questions.

The first question was timing: does any part of the bonus accrue to the resident period (January 1 - February 28, 1990)? For calendar year 1990, Tax Law § 638(c)(1) required a taxpayer changing from resident to nonresident status to include, in the resident portion of the year, any income that had already accrued before the change - regardless of whether the taxpayer used the cash or accrual method - as elaborated in the Personal Income Tax Regulations (then § 148.10(a), now § 154.10(a)). Borrowing the federal accrual test in Treas. Reg. § 1.451-1(a), income accrues when all events fixing the right to it, and its amount, can be determined with reasonable accuracy. Following the Department's own prior opinion in R.W. Kaszubinski (TSB-A-84(2)I) - where a private-annuity payment contingent on the annuitant's date of death wasn't accruable at the close of the resident period because it couldn't be fixed with reasonable accuracy - the Department held that none of this bonus was accruable to the resident period, because it wasn't determined until year-end and depended on facts (full-year performance and company profitability) not yet fixed on February 28, 1990. The entire bonus therefore falls into the nonresident period.

The second question was sourcing: once the whole bonus is nonresident-period income, how much of it is New York-source income subject to New York tax? Tax Law § 631(c) requires that a nonresident's income from an occupation carried on partly within and partly without New York be apportioned under the Commissioner's regulations, and the working-days formula in the Personal Income Tax Regulations (then §§ 131.4(b)/131.18(a), now §§ 132.4(b)/132.18(a)) allocates a nonresident employee's compensation based on the ratio of working days in New York to total working days. Citing its own prior opinion in Union Carbide Corporation (TSB-A-81(8)I) - which held that a bonus received while a nonresident is New York-source income to the extent the underlying services were performed in New York - the Department held that because this bonus was based on Petitioner's performance and the company's profitability for the entire 1990 calendar year, the working-days ratio used to allocate it must be computed using all of Petitioner's working days for the full year 1990, including the days she worked in New York during her resident period, not just her nonresident-period working days.

What this means for you

Individuals changing New York residency mid-year with a year-end bonus

If you move out of New York partway through the year and later receive a bonus that depends on your performance or your employer's results for the whole calendar year, don't assume any part of it is taxed as resident-period income just because you earned some of the underlying credit while you were still a resident. The accrual question turns on when the bonus amount became fixed with reasonable accuracy - if that didn't happen until year-end (after your residency changed), the entire bonus is treated as nonresident-period income for timing purposes. But that's not the end of the analysis: because the bonus is based on your whole year's work, the portion of it taxed as New York-source income is still calculated using a working-days ratio that reaches back and counts the New York days you worked during your resident period, alongside your nonresident-period working days both within and outside New York.

Accountants and payroll professionals computing part-year allocations

This opinion illustrates why a bonus earned across a residency change needs a two-step analysis, not a single proportional split. First, determine accrual timing under Tax Law § 638(c)(1) and 20 NYCRR § 154.10(a): apply the federal accrual test (Treas. Reg. § 1.451-1(a)) to ask whether the bonus's right and amount were fixed with reasonable accuracy before the change of residence. If the bonus depends on year-end results, it typically won't accrue to the resident period at all. Second, and separately, determine the New York-source allocation under Tax Law § 631(c) and 20 NYCRR § 132.4(b)/§ 132.18(a): if the compensation is based on services or performance across the full year, use a working-days fraction built from the entire year - not just the nonresident portion - as the denominator and numerator inputs. Don't conflate the two questions: the accrual question decides which tax period the income lands in, while the allocation question decides, within that period, how much of the income is New York-source. Here, the answer to the first question moved the whole bonus into the nonresident period, but the answer to the second question still pulled resident-period New York work days back into the sourcing calculation.

Common questions

Q: Since Petitioner worked almost entirely in New York during her resident period, shouldn't some of the bonus be taxed as resident-period income?
A: No. The relevant question for timing purposes isn't where she worked, but when the bonus became fixed in amount with reasonable accuracy. Because the bonus depended on her performance and the company's profitability for the full year, and wasn't determined until year-end, none of it had accrued by February 28, 1990. The entire bonus is nonresident-period income for accrual purposes, even though much of the underlying work occurred during the resident period.

Q: If the whole bonus is treated as nonresident-period income, does that mean none of it is taxed as New York-source income?
A: No. Accrual timing and New York-source allocation are separate questions. Even though the bonus falls entirely into the nonresident period, Tax Law § 631(c) and the working-days regulations still require figuring out what portion of it is derived from New York sources - and that calculation looks at where the underlying services were performed, not just when the bonus was received.

Q: How do you calculate the New York-source portion of the bonus if it falls into the nonresident period but was earned partly on resident-period New York work?
A: You use the working-days ratio in 20 NYCRR § 132.18(a) (formerly § 131.18(a)): working days employed within New York State divided by total working days employed within and without New York State. Because this particular bonus was based on Petitioner's performance and the company's profitability for the entire 1990 calendar year, that ratio is computed using all of her working days for the full year - both the New York working days from her resident period and the within/without New York working days from her nonresident period - not just her nonresident-period working days.

Q: Would the answer change if the bonus had instead been fixed in amount before the change of residence?
A: Yes, potentially. If the amount and the right to receive it had already been determined with reasonable accuracy before February 28, 1990, that portion would accrue to the resident period under Tax Law § 638(c)(1) and would be resident-period income rather than nonresident-period income. This opinion turns on the fact that the bonus here specifically was not determinable until year-end.

Q: What authority did the Department rely on to decide the bonus wasn't accruable to the resident period?
A: It applied the federal accrual test in Treas. Reg. § 1.451-1(a) (income accrues when all events fixing the right to it and its amount can be determined with reasonable accuracy) and followed its own prior opinion in R.W. Kaszubinski (TSB-A-84(2)I), where a private-annuity payment contingent on the annuitant's date of death likewise could not be fixed with reasonable accuracy at the close of the resident period and so was not accruable.

Q: What authority did the Department rely on for the New York-source allocation?
A: It applied Tax Law § 631(c) and the working-days regulations (then §§ 131.4(b)/131.18(a), now §§ 132.4(b)/132.18(a)), and followed its own prior opinion in Union Carbide Corporation (TSB-A-81(8)I), which held that a bonus or award received while a nonresident is New York-source income to the extent the underlying services were performed in New York.

Citations and references

• Tax Law § 638(c)(1) (1990) - a taxpayer changing from resident to nonresident status must accrue to the resident portion of the year any income that had already accrued before the change, regardless of accounting method
• 20 NYCRR § 154.10(a) (formerly § 148.10(a)) - resident-period New York taxable income is computed as if a federal return were filed for that period on the accrual basis
• Treas. Reg. § 1.451-1(a) - under the accrual method, income is includible when all events fixing the right to receive it, and its amount, can be determined with reasonable accuracy
• Tax Law § 631(c) - a nonresident's income from a business, trade, profession, or occupation carried on partly within and partly without New York is apportioned and allocated under the Commissioner's regulations
• 20 NYCRR § 132.4(b) (formerly § 131.4(b)) - a nonresident employee's New York adjusted gross income includes compensation only to the extent services were rendered within New York State
• 20 NYCRR § 132.18(a) (formerly § 131.18(a)) - a nonresident employee's New York-source compensation is the proportion that working days employed within New York bears to total working days employed within and without New York
• R.W. Kaszubinski, Adv Op St Tax Comm, May 1, 1984, TSB-A-84(2)I - a private-annuity payment contingent on the annuitant's date of death is not accruable at the close of the resident period because it cannot be fixed with reasonable accuracy
• Matter of John S. Litherland, Dec St Tx Comm, August 22, 1972 - cited alongside Kaszubinski on the non-accrual of contingent, not-yet-fixed amounts at the close of the resident period
• Union Carbide Corporation, Adv Op St Tax Comm, May 22, 1981, TSB-A-81(8)I - a bonus or award received while a nonresident is New York-source income to the extent the underlying services were performed in New York

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a95_7i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-95 (7) I
Income Tax
August 29, 1995

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I950323A

On March 23, 1995, a Petition for Advisory Opinion was received from Susan
Byrne Montgomery, 3212 Beverly Drive, Dallas, Texas 75205.
The issue raised by Petitioner, Susan Byrne Montgomery, is whether a bonus
paid to Petitioner during the portion of calendar year 1990 in which Petitioner
was a nonresident of New York is allocable proportionately to the resident and
nonresident periods for purposes of Article 22 of the Tax Law.
Petitioner received, as compensation, a salary of $X in 1990. In addition
to her regular salary, Petitioner also received a bonus of $Y determined at the
end of 1990, based on Petitioner' s performance and the profitability of the
company. Petitioner was a resident of New York State until her change of
residence on February 28, 1990. The bonus was not determinable on February 28,
1990.
Petitioner's only office during the resident period, January i to February
28, 1990, was in New York City. Petitioner worked entirely within New York State
during the resident period, except for four days. After the change of residence,
Petitioner continued her employment and received wage income for services
performed both within and without New York State on behalf of her employer.
Petitioner filed as a part-year resident of New York State in 1990 on Form
IT-203, reporting as a New York State resident from January 1, 1990 to February
28, 1990 and as a nonresident of New York State from March 1, 1990 to December
31, 1990.
For calendar year 1990, section 638(c)(1) of the Tax Law provided:
[i]f an individual changes his[her] status from resident to
nonresident he[she] shall, regardless of his[her] method of
accounting, accrue to the portion of the taxable year prior to such
change of status any items of income, gain, loss or deduction
accruing prior to the change of status, if not otherwise properly
entering into his [her] federal adjusted gross income for such
portion of the taxable year or a prior taxable year under his [her]
method of accounting.
Pursuant to this provision, a taxpayer who changes his or her status from
resident to nonresident is required to include in the resident portion of his or
her taxable year any income which has accrued before the date of the taxpayer's
change of residence regardless of whether the taxpayer is a cash basis or accrual
basis taxpayer.
For calendar year 1990, section 148.10(a) [now section 154.10(a)] of the
Personal Income Tax Regulations states that:
TP-9 (9/88)

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TSB-A-95 (7) I
Income Tax
August 29, 1995
[w]here the resident status of an individual ... changes from
resident to nonresident ... in computing New York taxable income ...
for the resident period, such individual ... must include all items
required to be included if a Federal income tax return were being
filed for the same period on the accrual basis, together with any
other accruals such as deferred gain on installment obligations
which are not otherwise includible or deductible for Federal or New
York State income tax purposes ....
Section 1.451-1 of the Treasury Regulations provides the general rule for
determining the taxable year that income is included in gross income for Federal
income tax purposes, and is instructive in determining whether income has accrued
within the meaning of section 638(c) of the Tax Law. Such section 1.451-1(a)
states, in part, that:
[g]ains, profits, and income are to be included in gross income for
the taxable year in which they are actually or constructively
received by the taxpayer unless includible for a different year in
accordance with the taxpayer's method of accounting.
Under an
accrual method of accounting, income is includible in gross income
when all the events have occurred which fix the right to receive
such income and the amount thereof can be determined with reasonable
accuracy. Therefore, under such a method of accounting if, in the
case of compensation for services, no determination can be made as
to the right to such compensation or the amount thereof until the
services are completed, the amount of compensation is ordinarily
income from the taxable year in which the determination can be made.
In R. W. Kaszubinski, Adv Op St Tax Comm, May 1, 1984, TSB-A-84(2)I, it was
held that where an amount to be received under a private annuity contract
subsequent to the close of the resident period is contingent upon the date of
death of the annuitant, such amount can not in fact be determined with reasonable
accuracy at the close of the resident period and is accordingly not accruable
under the Federal rule. It is therefore not subject to the special accrual
provision contained in section 654(c)(1) (subsequently section 638(c)), of the
Tax Law. See, Matter of John S. Litherland, Dec St Tx Comm, August 22, 1972.
Herein, Petitioner received a bonus of $Y determined at the end of 1990,
based on Petitioner's performance and the profitability of the company. Pursuant
to section 1.451-1(a) of the Treasury Regulations, and R.W. Kaszubinski, supra,
all of the events that fix the right to receive the bonus of $Y had not occurred
and the amount thereof could not be determined with reasonable accuracy on
February 28, 1990. Accordingly, pursuant to section 638(c) of the Tax Law, in
effect for taxable year 1990, and section 148.10(a) [now section 154.10(a)] of
the Personal Income Tax Regulations, no portion of the bonus of $Y is accruable
for Petitioner's resident period of January 1, 1990 through February 28, 1990.
The entire bonus is includable in Petitioner's nonresident period.
Section 631(c) of the Tax Law provides that where a business, trade,
profession or occupation is carried on partly within and partly without New York
State by a nonresident of New York State, the items of income, gain, loss and
deduction derived from or connected with New York sources shall be determined by
apportionment and allocation under the regulations of the Commissioner of
Taxation and Finance.

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TSB-A-95 (7) I
Income Tax
August 29, 1995
For calendar year 1990, section 131.4(b) [now section 132.4(b)] of the
Personal Income Tax Regulations states that:
The New York adjusted gross income of a nonresident individual
rendering personal services as an employee includes the compensation
for personal services entering into his[her] Federal adjusted gross
income, but only if, and to the extent that, his[her] services were
rendered within New York State... Where the personal services are
performed within and without New York State, the portion of the
compensation attributable to the services performed within New York
State must be determined in accordance with sections 131.16 through
131.18 [now sections 132.16 through 132.18] of this Part.
For calendar year 1990, section 131.18(a) [now section 132.18(a)] of the
Personal Income Tax Regulations states that:
If a nonresident employee ... performs services for his[her]
employer both within and without New York State, his[her] income
derived from New York State sources includes that proportion of
his[her] total compensation for services rendered as an employee
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 ....
In Union Carbide Corporation, Adv Op St Tax Comm, May 22, 1981, TSB-A­
81(8)I, it was held that when an employee receives an award or bonus while a
nonresident of New York State, such award or bonusis derived from or connected
with New York sources if the services for which the award or bonus is paid were
performed in New York State.
Herein, Petitioner's bonus of $Y determined at the end of 1990 was based
on Petitioner's performance and the profitability of the company for the entire
calendar year of 1990. Pursuant to section 631(c) of the Tax Law, section 131.4
[now section 132.4] of the Personal Income Tax Regulations and Union Carbide
Corporation, supra, Petitioner's bonus is derived from New York State sources to
the extent that Petitioner's services were performed in New York State.
Therefore, when determining the portion of the bonus that is attributable to
Petitioner's services rendered within New York State pursuant to section
131.18(a)[now section 132.18(a)] of the Personal Income Tax Regulations, the
total number of working days employed within New York State and employed within
and without New York State are computed based on the entire calendar year 1990.

DATED: August 29, 1995

NOTE:

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.