Section 1127: NYC Tax Obligations for Nonresident Employees

NYC Section 1127 is a provision of the New York City Charter that requires nonresident city employees hired on or after January 4, 1973, to pay the city an amount equal to what they would owe in NYC personal income tax if they lived in the five boroughs. The payment is withheld from your paycheck throughout the year and reconciled on Form NYC-1127, which is due May 15 of the following year. It is not technically a tax. It is a contractual condition of your employment, and that distinction matters when you try to claim it as a credit later.

Who Owes the Section 1127 Payment

You owe if two things are true: you were hired by the City of New York or one of its agencies on or after January 4, 1973, and you lived outside the five boroughs for all or part of the year.¹ Your civil service title, grade, or classification does not affect this.²

The obligation covers employees in mayoral agencies, the Health and Hospitals Corporation, and boards and commissions funded through the city budget.

Agencies That Are Exempt

Several major city-funded workplaces sit outside Section 1127 because their legal structures place them outside the Charter’s definition of “the city of New York or any of its agencies.” You do not owe the payment if you work for:

The Department of Education
The City University of New York (CUNY), including faculty and staff at all its colleges
Any of the five borough District Attorneys’ offices
The New York City Housing Authority (NYCHA), including former NYCHA or Transit Police officers who transferred into the NYPD

If you are unsure whether your employer falls inside or outside the requirement, your agency’s HR or payroll office can confirm your status.

How Much You Pay

The Department of Finance calculates your Section 1127 liability as though you were a full-year NYC resident, using the same graduated brackets that apply to residents. For 2026, those rates run from 3.078% on the lowest tier of taxable income to 3.876% on income above the top thresholds, with the exact bracket cutoffs depending on whether you file single, married filing jointly, or head of household.³ You apply the same deductions and exemptions a resident would use on a New York State return.

From that gross figure, you subtract any NYC personal income tax you actually paid during the year. Most nonresidents subtract zero because they had no NYC resident tax liability at all. Part-year residents subtract whatever city tax was withheld while they still lived in the five boroughs.

One change worth watching: under New York Administrative Code § 11-1701, the current higher rate brackets are set to expire after tax year 2026. If the state legislature does not extend them, the rates revert to roughly 1.18% to 1.48%, which would substantially reduce what nonresident employees owe starting in 2027.⁴

The Agreement and Paycheck Withholding

Every new hire signs a Section 1127 Agreement as a condition of employment. The Charter is explicit: no signed agreement, no job.² The form acknowledges that if you are or become a nonresident during your employment, you will make the required payment.⁵

Once the agreement is on file, your agency’s payroll system withholds an estimated amount from every paycheck based on your wages, filing status, and exemptions, much the way W-4 data drives federal withholding. The deductions appear on your pay stubs under a code distinct from federal and state withholding.

The agreement runs for the duration of your nonresident employment with the city. If you move into the five boroughs, your 1127 obligation stops because you now pay the city’s personal income tax directly. If you move back out, it starts again. Tell HR when your address changes.

Filing Form NYC-1127

After the calendar year ends, you file Form NYC-1127 to reconcile what was withheld against what you actually owe. The result is either a balance due or a refund.⁶

Deadline

The filing deadline is May 15 of the following year, not April 15. For tax year 2025, your return is due by May 15, 2026.⁶ If you received an extension for your federal or New York State return, your NYC-1127 deadline is extended to 15 days after that extended due date.

Where to Mail

The correct address depends on what you are sending:

Returns with a balance due or a zero balance: NYC Department of Finance, Section 1127, P.O. Box 5564, Binghamton, NY 13902-5564
Returns claiming a refund: NYC Department of Finance, P.O. Box 5563, Binghamton, NY 13902-5563
Payment vouchers with a check: NYC Department of Finance, P.O. Box 3933, New York, NY 10008-3933, mailed separately from the return

Attach a copy of your City Wage and Withholding Tax Statement (Form NYC-1127.2) showing the total withheld during the year.⁷ If your withholdings exceeded your liability, your refund is capped at the amount your employer actually took out. You cannot receive a refund larger than what was withheld from your wages.⁶

If You Moved During the Year

Moving into or out of the city mid-year, or working for the city for only part of the year, complicates the math. You report only the portion of your federal income and deductions that corresponds to the period when you were a nonresident city employee.⁶

The Department of Finance requires you to complete a pro forma New York State Form IT-360.1 (Change of City Resident Status), treating your period of city employment as though it were your period of city residence. The number from line 47 of that form feeds into line 1 of your NYC-1127 return, and you attach the completed IT-360.1 to your filing.

If you were a city resident for part of the year and a nonresident city employee for the rest, you file Form NYC-1127 for the whole year but exclude any period when you were a nonresident who was not employed by the city. The months you were a resident are handled through your regular state return, and the NYC personal income tax paid during those months offsets what you owe on the 1127 side.

Penalties for Missing the Deadline

Filing late or underpaying triggers penalties and interest. The form instructions point filers to Form NYC-200V for specific rates, and the Department of Finance posts its quarterly interest rates for tax underpayments on its website.⁶ Interest accrues daily on any unpaid balance. Because the signed agreement makes compliance part of your job, an unresolved balance is also an employment issue, not just a financial one.

Why Section 1127 Payments Are Not Taxes

This is the most misunderstood piece, and misreading it costs people money. New York’s Court of Appeals held in Legum v. Goldin that Section 1127 is not a tax statute. The payments are a contractual obligation tied to your employment, not a tax.

The consequence is that you generally cannot use 1127 payments to offset an actual NYC personal income tax liability. If you become a city resident after years of making 1127 payments, those prior payments do not create a credit against your new resident income tax. The New York Tax Appeals Tribunal reinforced this in In re Eisenstein, holding that Section 1127 payments for a given year cannot reduce a taxpayer’s NYC personal income tax for that same year. Before filing, ask a tax professional how your 1127 payments interact with any other local tax obligations you have.

The Charter itself uses the same framing. It calls the agreement a “condition precedent to employment” and specifies that 1127 payments do not reduce your official salary or compensation for any other purpose under the Charter or Administrative Code.²

1
NYC.gov. Return for Nonresident Employees of the City of New York (Form NYC-1127)
2
American Legal Publishing. New York City Charter Section 1127 – Condition Precedent to Employment
3
American Legal Publishing. New York City Administrative Code 11-1701 – Imposition of Tax
4
American Legial Publishing. New York City Administrative Code 11-1701 – Imposition of Tax
5
NYC.gov. Agreement Under Section 1127 of the New York City Charter
6
NYC.gov. NYC-1127 Return for Nonresident Employees 2025
7
NYC311. City Worker Nonresident Tax Form NYC-1127