With fewer people going to the office and a growing remote workforce over the past year, this tax season has brought on some new changes and special requirements. If you notice that your W-2 shows withholdings from your employer's location instead of your home state, you may fall under something known as “Convenience of the Employer.”
What is “Convenience of the Employer?”
Simply put, “Convenience of the Employer” means that an employer hasn't provided an employee with the necessary resources to work remotely, such as a physical office or technology, which requires the worker to provide their own home office equipment.
Therefore, even though the employee may work in another state, they're considered “in-house” employees. As such, they fall under the state tax regulations of their employer and are taxed according to the laws of their employer’s state.
How do I know if I fall under “Convenience of the Employer?”
Convenience of the Employer may apply to you if you live and/or work in:
- New York
Additionally, Connecticut taxes income of nonresidents working from home only when that taxpayer’s home state applies a similar tax.
If I fall under the convenience rule, what should I do next?
Until the Supreme Court decides, or the states reach a compromise, taxpayers should continue to file as outlined by their W-2s and current state laws. To do otherwise could result in an audit and/or fines by the state taxing authorities.
What Factors Would Exempt Me as a Remote Employee Instead?
Each state has its own guidelines, restrictions, and conditions regarding defining remote employees. To become exempt from the Convenience of the Employer and instead qualify as a remote, out-of-state employee, you'd need to be supplied with either dedicated or specialized facilities.
However, other exemption factors considered include:
- A home office is a requirement or condition of employment
- The employer doesn't provide the employee with an office or regular workspace
- The employer reimburses the employee for substantially all home office expense
- The employee has a bona fide business purpose for working at home (for example, to meet multiple project deadlines in the home state)
- The employee performs some core duties at home (for example, a stockbroker trades securities from home)
- The employer or worker regularly meets or deals with clients, patients or customers at home