The Regulations - According to the regulations, termination pay is allocable to New York based on New York compensation over total compensation for the year of retirement plus the preceding three years. 20 NYCRR § 132.20. The regulations have not been amended to reflect case law rulings, which have held that certain termination payments are not allocable to New York.
The McSpadden Exception - In Matter of McSpadden, TAT (Sept. 15, 1994), the Tribunal held that termination pay granted to a nonresident employee does not constitute New York source income if it was paid to buy out the remainder of the employee’s employment contract.
Must Show a Right to Future Employment - a taxpayer must show they had a right to future employment and that they were not an employee at will. Morgan (ALJ May 22, 2003); see Martin Davis (ALJ January 14, 1999). See also Donahue v. Chu, 104 AD2d 523 and Gordon, TSB‑A‑00(7)I.
Does it Have to Be in Writing? - the Department says yes. In order to qualify for severance payment exclusion, the terminated taxpayer must have had a written employment contract. Braun, TSB-A-05(2)I. This does not comport with the holding in Matter of Brophy, Tax App. Trib. (Dec. 7, 1995). Moreover, Matter of Davis, ALJ (Jan. 14, 1999) says that a separate written termination agreement is not required.