Marc Berman of the New York Post reported the news Tuesday.
New York general manager Scott Perry drafted Payton when he was with Orlando. Perry served as an assistant to former Magic general manager Rob Hennigan and helped swing a trade with the Philadelphia 76ers on draft night to land the Louisiana-Lafayette product.
Payton, 23, is averaging 13.1 points and 6.2 assists per game in his fourth NBA season. He's shooting a career-high 51.8 percent from the floor and 37.3 percent from three-point range. Orlando is shopping Payton ahead of Thursday's trade deadline, as he'll hit restricted free agency this summer.
"I always feel like God's got me, so whatever happens, it was meant to happen," Payton said when asked if he was worried about the deadline, per Josh Robbins of the Orlando Sentinel.
"Whatever is for me is for me. So it doesn't concern me at all. As long as I'm here [with the Magic], I'll give 100 percent here until they say it's time to go or whatever."
It would be odd for the Knicks to add Payton given that they spent a first-round pick on Frank Ntilikina in June. Ntilikina has been solid defensively in limited minutes but has struggled to find his stroke, shooting just 35.2 percent from the floor.
New York and Orlando have discussed adding centers Joakim Noah and Bismack Biyombo to the potential deal. Noah has been away from the team since he argued with coach Jeff Hornacek at a January practice, per Marc Stein of the New York Times, while Biyombo has disappointed since signing a $72 million contract in July 2016.