New York State - NY Tax on Foreign Sourced Income for NY Non-Resident
"For Non-Resident filers, New York taxes New York-sourced income. That includes: real or tangible personal property located in New York State   (including certain gains or losses from the sale or exchange of an   interest in an entity that owns real property in New York State); services performed in New York State; a business, trade, profession, or occupation carried on in New York State; and a New York S corporation in which you are a shareholder (including   installment income from an IRC 453 transaction). There are some exclusions as well. It is all covered in the instructions to form IT-203. However, keep in mind that ""filing"" as non-resident doesn't make you non-resident. If you spend 184 days or more in New York State, and you have a place to stay there - you are resident. See definitions here. Even if you don't actually live there and consider yourself a CT resident."
It turns out that in this special case for New York, they have a law that says that if you are changing your filing status from resident to nonresident, you must use the accrual method for calculating capital gains. So in this case, the date on the papers is the important one. "New York will want to you to pay taxes on income from ""New York sources"". I'm not sure what this means to a freelance web developer.  If your wife is doing freelance web development under the same business entity as she did in New York (ie. a New York sole proprietor, corporation, etc), you probably do need to file. From nonresident tax form manual: http://tax.ny.gov/pdf/2011/inc/it203i_2011.pdf If you were a nonresident of New York State, you are subject to New   York State tax on income you received from New York State sources in   2011. If you were a resident of New York State for only part of 2011, you are subject to New York State tax on all income you received while   you were a resident of the state and on income you received from New   York State sources while  you were a nonresident.  To compute the amount of tax due, use Form IT-203, Nonresident and   Part-Year Resident Income Tax Return. You will compute a base tax as   if you were a full-year  resident, then determine the percentage of   your income that is subject to New York State tax and the amount of   tax apportioned to New York State." Multistate Impact of the American Taxpayer Relief Act of 2012  In general, states with rolling conformity will follow this change. States with specific date conformity will continue  to follow the date of conformity currently in effect and will not follow the change. A few states may have their own  QSBS rules and will not conform to or be impacted by this provision of the Act. The chart that follows summarizes  these principles as applied to the enumerated states:  STATE: QSBS Exclusion Conformity:  California statutes refer to the IRC QSBS provisions but modify and limit their  applicability, and would not be impacted by this provision of the Act. However, California’s provisions were ruled unconstitutional in recent litigation and the California Franchise Tax Board has recently taken the position that gain exclusions  and deferrals will be denied for all open tax years. Florida Florida does not impose an income tax on individuals and therefore this provision of  the Act is inapplicable and will have no impact.  Illinois Due to its rolling conformity, Illinois follows this provision of the Act.  Because New York effectively provides for rolling conformity to the IRC, through  reference to federal adjusted gross income as the state starting point, New York  effectively follows this provision of the Act.  Texas does not impose an income tax on individuals This is a complicated question that relies on the US-India Tax Treaty to determine whether the income is taxable to the US or to India.  The relevant provision is likely Article 15 on Personal Services. http://www.irs.gov/pub/irs-trty/india.pdf It seems plausible that your business is personal services, but that's a fact-driven question based on your business model.  If the online training is 'personal services' provided by you from India, then it is likely foreign source income under the treaty.  The 'fixed base' and '90 days' provisions in Article 15 would not apply to an India resident working solely outside the US. The question is whether your US LLC was a US taxpayer.  If the LLC was a taxpayer, then it has an obligation to pay US tax on any worldwide income and it also arguably disqualifies you from Article 15 (which applies to individuals and firms of individuals, but not companies).  If you were the sole owner of the US LLC, and you did not make a Form 8832 election to be treated as subject to entity taxation, then the LLC was a disregarded entity.  If you had other owners, and did not make an election, then you are a partnership and I suspect but cannot conclude that the treaty analysis is still valid. So this is fact-dependent, but you may be exempt from US tax under the tax treaty.  However, you may have still had an obligation to file Forms 1099 for your worker.  You can also late-file Forms 1099 reporting the nonemployee compensation paid to your worker.  Note that this may have tax consequences on the worker if the worker failed to report the income in those years. It essentially works the same. Some states don't have any income taxes at all (like Florida or Wyoming), some only tax income derived in the state, and some tax worldwide income (like New York or California), similarly to the Federal income taxes. However, if you're living abroad (i.e.: you're a citizen or resident of a foreign country and you live there), you're not considered resident by most of the states (check with your state for specific definitions) for most, if not all, the time of your residency abroad. In such case - you don't pay state taxes, only Federal. You have to remember that foreign income exclusion doesn't apply to the income from your 401k, so you pay the taxes as if you're in the US. You can not use foreign taxes credit as well (but depending on the tax treaty with the country you're moving to, your 401k income might not be taxable there). In some cases you may end up with double taxation: US will tax your 401k income as you're a US citizen and the income is derived from the US sources, and the foreign country will tax the income based on its own laws. This is not a tax advice, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. "If a person is not a U.S. citizen and they live and work outside the U.S., then any income they make from a U.S. company or person for services provided does not qualify as ""U.S. Source income"" according to the IRS.  Therefore you wouldn't need to worry about withholding or providing tax forms for them for U.S. taxes.  See the IRS Publication 519 U.S. Tax Guide for Aliens." Unfortunately, you are required, but most states do have agreements with neighboring states that let the states share the collected taxes without the person having to pay double taxes. So being as this is your first tax return in your current situation, you might be wise to have a professional fill it out for you this year and then next year you can use it as a template. Additionally, I really would like to see someone challenge this across state lines taxation in court. It sure seems to me that it is a inter-state tariff/duty, which the state's are expressly forbidden from doing in the constitution. According to the Colorado form CY104PN, Colorado taxes income earned while working in or being a resident of the State of Colorado. Assuming you never set foot in the State of Colorado, I read it as if you will only be liable to pay taxes in the State of New York (on all of your income, of course). You can get a more reliable opinion from a Colorado-licensed CPA. This question came up again (Living in Florida working remotely - NY employer withholds NYS taxes - Correct or Incorrect?) and the poster on the new version didn't find the existing answers to be adequate, so I'm adding a new answer.   NYS will tax this income if the arrangement is for the convenience of the employee. If the arrangement is necessary to complete the work, then you should have no NYS tax. New York state taxes all New York-source salary and wage income of nonresident employees when the arrangement is for convenience rather than by necessity (Laws of New York, § 601(e), 20 NYCRR 132.18). Source: http://www.journalofaccountancy.com/issues/2009/jun/20091371.html Similar text can also be found here: http://www.koscpa.com/newsletter-article/state-tax-consequences-telecommuting/ The NYS tax document governing this situation seems to be TSB-M-06(5)I. I looked at this page from NYS that was mentioned in the answer by @littleadv. That language does at first glance seem to lead to a different answer, but the ruling in the tax memo seems to say that if you're out of state only for your convenience then the services were performed in NYS for NYS tax purpose. From the memo: However, any allowance claimed for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of- state duties in the service of his employer. You should consult a US CPA to ensure your situation is handled correctly.  It appears, the money is Israel source income and not US source income regardless if you receive it while living in the U.S. If you file the correct form, I suspect the form is 1040NR and your state form to disclose your income, if any, in 2015 and 2016, it should not be a problem. Having said that, if you do earn any type of income while in the U.S. , you are required to disclose it to both the IRS and state. Hi u/Sagiv1,  Short answer: Yes, you do have to pay taxes in Israel for all your worldincome.  Long answer: All countries within the OCDE consider you as a fiscal resident in the country where you spend over half a year in (183 days and up). If you do not spend that much time in any country, there are other tying measures to avoid people not being fiscal residents in any country.  Since you are living in Israel, you will have to pay all your worlwide generated income in Israel, following the tax regulation that is in place there. I am no Isarely Tax Lawyer so I cannot help you there.  Having a lot of business internationally brings other headaches with it. Taking for example the U.S. there is a possibility that they withold taxes in their payments. It is unlikely, though, as they have a Tax Treaty to prevent double taxation. You can ask for this witholded money to be returned from the U.S. or other countries through each country's internal process.  Another thing to take into account is that you can be taxed in other countries for any revenue you generate in said country. This is especially relevant for revenue that comes from Real Estate. The country where the real estate is will tax you in the country and you will have to deduct these taxes paid in your country, Israel in this case. If there is no tax treaty you might possibly be paying twice.  I know you said you do promotion, but I have to warn you about this, because I ignore what other countries tax or do not tax. So been giving more info won't hurt.  If the US is the main and/or only country you will be doing business with, I strongly recommend you real the Tax treaty with lots of love and patience. You can find it here: https://www.irs.gov/pub/irs-trty/israel.pdf or here:  Treaty:http://mfa.gov.il/Style%20Library/AmanotPdf/005118.pdf Amendment: http://mfa.gov.il/Style%20Library/AmanotPdf/005120.pdf  If you are from Israel and prefer it in Hebrew, here are the treaties in your language:  Treaty: http://mfa.gov.il/Style%20Library/AmanotPdf/005119.pdf Amendment: http://mfa.gov.il/Style%20Library/AmanotPdf/005121.pdf   Normally most IRS Departments have sections with very uselful help on these sort of matters. I'd recomment you to take a look at yours.   Last, what I've explained is the normal process that applies almost all over the world. But each country has their own distinctions and you need to look carefully. Take what I said as a starting point and do your own research or ideally try to find a tax consultant/lawyer who helps you.  Best of luck. From my research it looks like its an income NOT effectively connected with the trade of business. This page has the exact details https://www.irs.gov/individuals/international-taxpayers/effectively-connected-income-eci I suggest you talk to a New York-licensed tax adviser (EA or NY-licensed CPA). New York is very aggressive when it comes to residency determination, and given your facts and circumstances you may end up being considered NY resident despite relocating to Florida. If you maintain a studio in NY, I'd say 99% chance is that you remain NY resident for the whole year (but verify with a professional). "I'm working on similar problem space. There seems to be some working ambiguity in this space - most focus seems to be on more complex cases of income like Dividends and Capital Gains.  The US seems to take a position of ""where the work was performed"" not ""where the work was paid"" for purposes of the FEIE. See this link. The Foreign Tax Credit(FTC) is applied (regardless of FEIE) based on taxes paid in the other Country. In the event you take the FEIE, you need to exclude that from the income possible to claim on the FTC. i.e. (TOTAL WAGES(X) - Excluded Income) There is a weird caveat on TOTAL WAGES(X) that says you can only apply the FTC to foreign-sourced income which means that potentially we are liable for the on-US-soil income at crazy rates.  See this link.. Upon which... there is probably not a good answer short of writing your congressperson." Is this money taxable in US?  From what you described you're likely to have been a US tax resident. As such, you're taxed on your worldwide income. Foreign tax deferral schemes are not considered qualified under the US law (unless a treaty says otherwise), so you're liable for taxes on them now. Get a new tax adviser.