topic CA resident working remotely for NY state in State tax filing

CA resident working remotely for NY state

drheidi — Mon, 08 Apr 2024 05:38:11 GMT

I am a resident of CA, but I work remotely for a company in the state of NY. The state of NY will be taxing me as a resident of their state, but it seems that they will not take out withholdings for CA. What should I do to prevent a large tax bill at the end of the year? Also, the state of CA has withholding for state disability insurance. How do I make estimates for that?

Re: CA resident working remotely for NY state

maglib — Mon, 08 Apr 2024 06:57:32 GMT

@drheidi your NY employer should be taxing you as a nonresident of NY. You will owe taxes to NY as you are working remotely for a NY based business. New York is one of a handful of states that has a “convenience of employer” rule, meaning workers must pay income tax to New York if their employer is based in the state, even if their job was done remotely. Nonresidents of NY only pay taxes to New York on New York-sourced income

Your employer should withhold taxes for CA especially as they are liable for UI, ETT, SDI, and PIT depending on if they have business there. It could get messy if you ever have to file for unemployment as your work is being done out of CA and you are in CA more than 50% of the time . Employers also have a responsibility to withhold taxes for the state in which the employee works and your place of work will be CA. CA is one of the few states who have no reciprocal tax agreements. Employers conducting business in California are required to register with and file reports and pay taxes to EDD. https://www.taxes.ca.gov/Payroll_Tax/doingbus1.html If they do, no problem have them withhold. If they don't you will have to pay estimated taxes to CA.As you are a resident of CA, you owe taxes as if all income was earned in CA. Generally, residents of California (with the exception of dual-resident estates and trusts) may claim a credit for net income taxes imposed by and paid to another state only on income which has a source within the other state. in your case NY sourced.

You should talk to your employer as there are a number of intricacies to CA FTB liabilities. They should start withholding for CA. If they won't withhold taxes, make sure to file estimated taxes utilizing TT. You may want to update it if you had bonuses or any other income sources as you don't want to have CA tax penalties for failure to pay timely.

Next year when you file first you will do your Federal return, then your non-resident NY State for the remote work and you will have to allocate other types of income such as dividends and interest out during the NY interview, and third your CA resident state which will credit you for double taxed income at lowest state rate.

Re: CA resident working remotely for NY state

TomD8 — Mon, 08 Apr 2024 14:01:43 GMT

@drheidi --

If you were a full-year resident of CA in 2023, and you never set foot in NY, then your remotely-earned income is not subject to NY income tax.

Here's the applicable New York law:

"The New York adjusted gross income of a nonresident individual rendering personal services as an employee includes the compensation for personal services entering into his Federal adjusted gross income, but only if, and to the extent that, his services were rendered within New York State."

https://casetext.com/regulation/new-york-codes-rules-and-regulations/title-20-department-of-taxation-and-finance/chapter-ii-income-taxes-and-estate-taxes/subchapter-a-new-york-state-personal-income-tax-under-article-22-of-the-tax-law/article-3-nonresidents/part-132-new-york-adjusted-gross-income-of-a-nonresident-individual/income-and-deductions-from-new-york-state-sources/section-1324-business-trade-profession-or-occupation-carried-on-in-new-york-state

If that's still your situation for 2024, then you should file NY Form IT-2104.1 with your NY employer in order to exempt yourself from NY withholding. Here's a link to that form:

https://www.tax.ny.gov/pdf/current_forms/it/it2104_1_fill_in.pdf

If NY taxes were incorrectly withheld from your pay, then you should file a non-resident NY tax return on which you show the withholding but declare zero NY income, in order to obtain a full refund.

Re: CA resident working remotely for NY state

maglib — Mon, 08 Apr 2024 15:48:23 GMT

@TomD8 NY is one of the few states who does tax nonresidents for telecommuting if their employer is in NYS. see TSB-M-06(5)I, TSB-M-06(5)I]. Section 601(e) of the New York State Tax Law imposes a personal income tax on a nonresident individual’s taxable income that is derived from New York sources. The tax is equal to the tax computed as if the individual were a New York State resident for the entire year, reduced by certain credits, multiplied by the income percentage. Work days are days on which you were required to perform the usual duties of your job. Any allowance for days worked outside New York State must be based upon the performance of services which, because of necessity (not convenience) of the employer, obligate the employee to out-of-state duties in the service of his
employer. Such duties are those which, by their very nature, CANNOT be performed at the employer’s place of business.

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

Work days are days on which you were required to perform the usual duties of
your job. Any allowance for days worked outside New York State must be based upon the performance of services which, because of necessity (not convenience) of the employer.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.

The Factors are made extremely difficult:

Factors to apply to determine if a home office is a bona fide employer office
Employees should use the factors provided below to assist them in determining if their
home office constitutes a bona fide employer office. The factors are divided into three
categories: the primary factor, secondary factors, and other factors. In order for an office to be
considered a bona fide employer office, the office must meet either:
a) the primary factor, or
b) at least 4 of the secondary factors and 3 of the other factors.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 3 -
Primary Factor
The home office contains or is near specialized facilities.
If the employee’s duties require the use of special facilities that cannot be made available
at the employer’s place of business, but those facilities are available at or near the employee’s
home, then the home office will meet this factor. For example, if the employee’s duties require
the use of a test track to test new cars, and a test track is not available at the employer’s offices in
New York City, but is available near the employee’s home, then the home office will meet this
factor. In the alternative, if the employee’s duties require the use of specialized scientific
equipment that is set up at the employee’s home (or at a facility near the employee’s home) but
could physically be set up at the employer’s place of business located in New York, then the
home office would not meet this factor.
Secondary Factors
1) The home office is a requirement or condition of employment.
If the employer requires the employee to work from his or her home office as a condition
of employment, the home office will meet this factor. For example, if a written employment
contract states the employee must work from home to perform specific duties for the employer,
then the home office will meet this factor.
2) The employer has a bona fide business purpose for the employee’s home office
location.
If the employer has a bona fide business purpose for establishing an office in the locale
where the employee’s home is located, the home office will meet this factor. For example, if the
employee is an engineer working on several projects in his or her home state and it is necessary
that the employee have an office near these projects in order to meet project deadlines, then the
home office will meet this factor.
3) The employee performs some of the core duties of his or her employment at the
home office.
If some of the core duties of employment are performed at the home office, then the
home office will meet this factor. For example, the core duties of a stock broker include the
purchase and sale of stock. Accordingly, if the stock broker executes stock purchases and sales
from the home office, this would constitute performing some of the core duties at the home
office. However, if the stock broker merely reads business publications on the weekend, this
would not constitute performing any core duties at the home office.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 4 -
4) The employee meets or deals with clients, patients or customers on a regular and
continuous basis at the home office.
If an important part of the employee’s duties include physically meeting with clients,
patients or customers in the normal course of the employer’s trade or business, and those
meetings are performed on a regular and continuous basis at the home office, then the home
office will meet this factor. For example, the employer has clients located near the employee’s
home office and the employee must meet with the clients once a week to perform the duties of
his or her job. If the meetings with clients are on a regular and continuous basis at the
employee’s home office, then the home office will meet this factor.
5) The employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business.
If the employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business, then the home office will
meet this factor. For example, an employer wishes to reduce the size of the office space
maintained in New York to decrease rental expenses and, therefore, no longer provides
designated office space or other regular work accommodations for one of its employees. Instead,
the employer allows the employee to work from the employee’s home. If the employee must
come to the office, the employee must use the “visitors” cubicle, conference room, or other
available space that is also used by the other employees of the company. In this instance, the
home office will meet this factor.
6) Employer reimbursement of expenses for the home office.
If the employer reimburses the employee for substantially all of the expenses (e.g., utility
expenses, insurance) related to the home office, or the employer pays the employee a fair rental
value for the home office space used and the employer furnishes or reimburses the employee for
substantially all of the supplies and equipment used by the employee, then the home office will
meet this factor. For purposes of this factor, substantially all of the expenses means 80% or more
of the expenses.
Other factors
1) The employer maintains a separate telephone line and listing for the home office.
2) The employee’s home office address and phone number is listed on the business
letterhead and/or business cards of the employer.
3) The employee uses a specific area of the home exclusively to conduct the business of the
employer that is separate from the living area. The home office will not meet this factor if
the area is used for both business and personal purposes.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 5 -
4) The employer’s business is selling products at wholesale or retail and the employee keeps
an inventory of the products or product samples in the home office for use in the
employer’s business.
5) Business records of the employer are stored at the employee’s home office.
6) The home office location has a sign indicating a place of business of the employer.
7) Advertising for the employer shows the employee’s home office as one of the employer’s
places of business.
😎 The home office is covered by a business insurance policy or by a business rider to the
employee’s homeowner insurance policy.
9) The employee is entitled to and actually claims a deduction for home office expenses for
federal income tax purposes.
10) The employee is not an officer of the company.

Re: CA resident working remotely for NY state

TomD8 — Mon, 08 Apr 2024 17:39:57 GMT

@maglib --

TSB-M-06(5)I:((5/06) applies only to employees who work both within and without New York State. To quote from its first paragraph:

"The memorandum addresses situations where a nonresident or part-year resident employee whose assigned or primary work location is in New York State performs services for an employer at that location and at a home office located outside of New York State."

TSB-M-06(5)I:(5/06):New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others:tsbm065i (ny.gov)

A non-resident of New York who never physically works within New York State has no tax obligation to the State of New York. This has also been affirmed by the Appellate Division of the New York Supreme Court:

“A nonresident who works in another State but who performs no work in New York is not subject to New York State tax liability no matter for whose convenience or necessity he performs the work”

Hayes v. State Tax Comm, 61 A.D.2d 62, 64 (N.Y. App. Div. 1978)

This principle is also clearly stated in the New York law that I cited in my previous post.

Re: CA resident working remotely for NY state

maglib — Mon, 08 Apr 2024 21:48:06 GMT

@TomD8 NY 100% taxes telecommuters as sourced to NY offices. They consider all days as worked in the NY office. You needed to keep reading as to what constituted worked in NY . Those who have fought, almost all lost unless they can prove the tests and they get a w-2 showing NY source income. The rules were changed in 2006. You can talk to every person in NJ who telecommutes now full time to NY and never sets foot there, NY taxes them.

I have fought this legal battle myself and they had to open an office in NJ to get us off the NY payroll! If we even drive through NY, they claim we are there. I even met many of the tests. We had to get a office in NJ opened.

“Convenience of the employer” rules are requirements that taxpayers who live and work in another state must nevertheless pay income taxes to their employer’s state, even if they may NEVER physically set foot in it. The term comes from New York, which imposes such a rule on employees of in-state companies unless the taxpayer proves to New York officials that working remotely is a necessity, not merely a “convenience.” Taxpayers rarely win.

the constitutionality of state taxes on remote-working nonresidents remains open to formal legal challenges — which have materialized but, so far no changes although NY did discuss 3 tiers it never passed.

In OP case the office is in NY, they work for that office. Unless they can prove a bona fide employer office which is rare, or there is another office they are assigned to, they are NY Source income.

Employees should use the factors provided in last comment to assist them in determining if their
home office constitutes a bona fide employer office. The factors are divided into three
categories: the primary factor, secondary factors, and other factors. In order for an office to be
considered a bona fide employer office, the office must meet either:
a) the primary factor, or
b) at least 4 of the secondary factors and 3 of the other factors.

Re: CA resident working remotely for NY state

TomD8 — Mon, 08 Apr 2024 22:31:05 GMT

@maglib --

In addition to my previous citations from New York's laws, guides, and court decisions, I would add the fact that New York employers are not required to withhold NY taxes from the pay of non-residents who perform no services within New York State.

See the following the following from Section 3(I) of the 2023 NYS Employers withholding guide (pages 44-45):

"New York State personal income tax must be deducted and withheld on wages paid to New York State nonresident employees for services performed in New York State."

"If a New York State nonresident employee performs services partly in the state, only wages for services inside the state are subject to withholding of New York State personal income tax."

https://www.tax.ny.gov/pdf/publications/withholding/nys50_1223.pdf

I believe all the references I've cited are consistent in stating that non-residents of New York who perform no services within New York are not subject to New York income tax. I'm not going to post any more on this thread.

Re: CA resident working remotely for NY state

maglib — Mon, 08 Apr 2024 23:37:19 GMT

@TomD8 As a telecommuter who has fought and lost against NY and owed interest and penalties and KNOW FOR A FACT my employer fought tooth and nail and got audited for telecommuters. you can continue to argue as I did for multiple years with CPA partners from major NYC firms THE BIG 4. NY DEFINITIONS MATTER as to what is performed in NY! NY says telecommuting is PERFORMED in NY.

FIRMS started opening offices in NJ just to get around this and NY is currently going after that saying the purpose of the office was to circumvent NY laws.

AGAIN. NY claims any work you do for a NY located company is DONE IN NY unless there is a meeting of the rules. so every point you make says performed in NY would include telecommuting unless you have a bonafide office that meets the rules.

I'm not responding any longer but, I promise this cost me hundreds of hours and thousands of dollars and I worked side by side with Big 4 partners and the top legal firm in NYC drafting letters to NY. NY says telecommuting by their definitions is PERFORMED IN NY so every argument fails unless you meet the rules. Note office in the home is no longer deductible and was one of our arguments, along with own phone number, own address, own office, met clients at home, not an officer, had no specific desk in NY, had not been in NY at all.... clients were all non-NY but, was paid by a NY OFFICE, and note our company had offices worldwide!

The only time your points matter is a person working for another NON-NY office of a company. Even this person who even visits NY for a few days to meet a client, they still have NY source income. Yet they are not NY employees so nonresidents with allocations but still owe NY. In this case the person WORKS FOR A NY only company, there is NO other offices they are assigned to. Assigned to a NY office, everything regardless of location, is considered performed in NY.

I suggest OP speak to a licensed CPA and their employer. NY audits every major company payroll now specifically for this.

While most states apply a “physical presence” test, New York applies a “convenience of the employer test.” In other words, in New York the income must be earned by work performed out of New York State for the necessity of the employer, rather than out of convenience.

Congress has been trying to do something about the problem. The Multi-State Worker Tax Fairness Act aims to abolish the “convenience of the employer” test and force all states to rely on the “physical presence” of the employee. It most recently died in 2014 but apparently was reintroduced in 2016. According to the AmericanPayroll.org article, New York state opposed the legislation. That’s hardly surprising since they’ll see a loss in taxes.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/remote-income-taxable-new-york-state/L5QWawxC5_US_en_US?uid=lurl80mm

https://www.cpajournal.com/2023/08/16/an-inconvenient-truth-about-remote-work-2/

https://www.nysscpa.org/most-popular-content/after-the-move-part-ii-new-york-state-s-income-sourcing-rules-for-business-sales#sthash.PO3svbFJ.dpbs

https://www.ncsl.org/fiscal/state-and-local-tax-considerations-of-remote-work-arrangements

https://news.bloombergtax.com/daily-tax-report-state/new-yorks-remote-work-tax-under-attack-from-closest-neighbors

https://www.jdsupra.com/legalnews/covid-and-new-york-s-convenience-rule-1813281/

https://www.taxpolicycenter.org/taxvox/taxing-remote-workers-convenience-conflict-and-courts

https://taxnews.ey.com/news/2023-2041-new-york-alj-rules-states-convenience-of-the-employer-rule-applies-to-work-from-home-days-during-the-covid-19-pandemic

https://www.grantthornton.com/insights/alerts/tax/2024/salt/k-o/ny-nonresidents-pandemic-remote-work-taxed-01-05#:~:text=New%20York%20may%20tax%20a,York%20to%20total%20days%20worked

Re: CA resident working remotely for NY state

kristinelbly — Wed, 24 Apr 2024 10:11:11 GMT

@maglib If the person who posed the question performed NO services (zero days physically present working for their employer) in the State of New York, they are not subject to tax under 132.18(a). There is a famous case in New York State called Matter of Hayes that sets this precedent. You cannot be bound by the telecommuting law if you work 0 days in the State of New York. The NYS withholding guidelines recognize it for employers as well. That is a fact.

We are seeing a significant rise in employees who are working 100% from home post-COVID. It's not unusual to have fully remote individuals who would not be subject to tax in NYS even if it was their primary office location. If they get audited, a letter from their employer saying that they worked zero days in NYS is sufficient proof that they are not subject to the tax, even if their employer withheld on all of their wages. @TomD8 was trying to make that point here.

That couldn't have been the facts of your case. You must have gone to New York State on at least some days throughout the year in order to have owed New York State taxes. If your primary office was in NYS, and if you did not meet the bona-fide home office conditions, then yes, 100% of your wages would be subject to tax in NY on any day you worked from home.

Feel free to look up my background. I've had, and continue to have, lots of clients whose accountants are at the Big 4. Happy to talk to you on the phone, or your Big 4 CPA and/or top attorney, and I can explain the differences in your case versus the point made by TomD8. It's very probable that those tax professionals and I already know one another. I'm sorry you went through what you did, but your argument is only partly-right based on your case, and may not be applicable to the OP.

Also, while I am typically not cost effective to people on Intuit, you're an exception. If you ever get audited again- give me a call. None of my clients have paid six-figures in fees for an audit. Which is one of the reasons why Big 4 and Big Law hire me, we want all of our clients to be happy - both with the outcome of their audit, but also the amount of money they paid to defend their position.

@TomD8 I stumbled on this one when I googled "TSB-M-06(5)" this morning to send to someone, kind of like how I found the first Intuit feed. Always feel free to @ me if you feel the need, I do get email notifications.

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 15:12:32 GMT

@kristinelbly Actually we live in NJ and he does not set foot in NY other than driving through to see family on Long Island. He is semi retired. They even changed his office to a NJ office and still NYS has audited the FIRM attempting to move NY SOURCE income out of state. I already spoke with and had a larger Tax Partner involved in the case than your Firm. His clients are worldwide clients, he meets all clients in NJ and even in our home. He won't even attend the FIRM holiday party in NY any longer.

NY SOURCE means the company your work for is in NY and the work is then NY Source is their claim.
This firm is not the only Firm having audits by NYS over their personnel who have been transferred to new offices.

Your Matter & Hayes case was prior to the changes in NY. The Zelinsky case is the most recent ruling.

Convenience of Employer is the ruling and you need a bona fide office established. I assume office you are with is not in NY nor NJ where during Covid and now telecommuting this has been a issue

bona-fide home office conditions. You should look what those are, a telecommuter would not normally meet them. Convenience of Employer rule is close to impossible to get over. add to the fact most telecommuters go into NY for some purpose being a party, a meeting, an interview, even socially they attempted to use, including driving through. NY has been hard and so far NO COURT CASES have established elsewise, closest was one in MASS.. Still waiting.

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 14:46:27 GMT

If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.Feb 14, 2023

Frequently Asked Questions about Filing Requirements ...

Department of Taxation and Finance (.gov)
https://www.tax.ny.gov › pit › file › nonresident-faqs

TSB-M-06(5)I:(5/06) - Tax.NY.gov - New York State

Department of Taxation and Finance (.gov)

https://www.tax.ny.gov › pdf › memos › income

PDF

May 15, 2006 — Any allowance for days worked outside New York State must be based upon the performance of services which, because of necessity (not convenience).

6 pages

https://tax.thomsonreuters.com/news/the-pandemic-lockdown-tests-new-yorks-application-of-its-convenience-of-the-employer-rule/

https://www.grantthornton.com/insights/alerts/tax/2024/salt/k-o/ny-nonresidents-pandemic-remote-work-taxed-01-05

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 15:00:07 GMT

bona-fide home office conditions telecommuters would NOT meet. You should research them and I did provide them above. They are not simple, I work from my house and do not go to NY... you have conflict in your response

Re: CA resident working remotely for NY state

kristinelbly — Wed, 24 Apr 2024 16:04:33 GMT

@maglib With all due respect, I am one of the leading experts in this field. The size of a firm, does not validate the expertise of its partners.

Section 132.18(a), the part of the law that covers the convenience rule, has not changed since Matter of Hayes. The New York State withholding guidelines, as of todays date, tell employers they do not need to withhold on employees who perform no services in the state of New York.

In your case - it sounds like there were potentially one of two problems. There were days he actually worked in NYS or he could not prove that all of the days were worked out of the State given the proximity to New Jersey.

Matter of Zelinsky is a recent court case on telecommuting in New York. Professor Zelinsky worked in NYS for a portion of the year (January-March 2020), his facts are not the same. There is nothing you are going to tell me that I don't know. I have represented ultra high net worth clients in over a thousand New York State tax audits. I used to be a New York State tax auditor myself. I write about the cases and follow changes in every state in the country.

I've handled at least a dozen cases last year, citing the Matter of Hayes, with zero New York workdays, and I have won all of them.

If this individual you speak of is a W-2 employee, truly works no days in NYS, and only commutes to Long Island for personal reasons, they are paying NYS taxes they should not be. Did anyone attempt to prove that this individual did not work in NYS by using their cell phone records to track their physical presence and support that he was in fact only transiting through to Long Island and not working in the state? Did they request swipe card records from the building supporting he didn't go in?

My advice stands. If OP did not work in NYS, their wages are not taxable in NYS.

You can Google me and find me on LinkedIn. Feel free to call to me and fill me in on all of your facts. If what you say is true, and this person didn't work in NYS at all - happy to take it on as a contingency and get you your money back. I'm very good at what I do.

Re: CA resident working remotely for NY state

kristinelbly — Wed, 24 Apr 2024 16:21:33 GMT

@drheidi If you are in fact living and domiciled in California, your employer cannot tax you as a resident of New York State. What it sounds like is happening, is that they are withholding NYS taxes because you are assigned to a NY office. If there is any presumption that you might go to NYS for work purposes, this is the correct way to handle. If, however, its clear in your employment agreement/paperwork that you are a fully remote employee working year round in CA, you shouldn't have NY withholdings. You can file an IT-2104.1 listing the 0% and nonresident status, and see if they accept that.

As it relates to CA taxes, they should be withholding those regardless. CA is a physical presence state. Meaning even if NYS considers them NY workdays and subject to tax in NYS, CA also considers them CA workdays and subject to tax in CA. Its important that you get a professional involved, because you may not be entitled to claim a tax credit in your home state of CA, for taxes paid in NY, because of the incongruence of the laws. The last thing you want is to be subject to tax in both NYS and CA on the same income.

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 21:36:07 GMT

He has a letter from his employer that he did not work in NY at all. His business card has his personal cell #, no address, he even meets multiple requirements of the office. You site the facts but, then fail to state details to those facts of proving an office. Yet then you do not tell folks how difficult it is to prove your office for NYS purposes and what Convenience of Employer rule is. We are in middle of a fight with NY and have a tax partner who is fighting others on our side but, have to pay every year and do note he now even works for a NJ office and they still reccomend paying NY. Do note he is a licensed CPA and has work in the field for many years. Let me know your court cases considering NY claims to tax them otherwise.
Let me know your clients whom are not withholding NYS taxes where the office is in NY and the person telecommutes. I'd love to hear it considering the major payroll firms are wh NY for anyone who is assigned ot a NYS office.
Make sure you are informing these telecommuters the full details of what an office is and also if they ever go to NY for training, or an interview or a party for the FIRM you better give them all those details.

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 21:45:25 GMT

NJ fighting back. Let me know what court cases that have had any rulings considering MASS one didn't complete. We are following it.

The Gross Income Tax Convenience of the Employer Sourcing Rule was enacted for tax years beginning on and after January 1, 2023.

What is a Convenience of the Employer Rule?
Under a Convenience of the Employer Rule, a nonresident taxpayer’s employee compensation from a New Jersey employer for the performance of personal services is sourced to the employer’s location in New Jersey if the employee is working from an out-of-state location (e.g. telecommuting from their resident state) for their own convenience, rather than for the necessity of their employer.

Does New Jersey have its own Convenience of the Employer Rule?
New Jersey does not have its own Convenience of the Employer Rule. However, P.L.2023, c.125 was enacted on July 21, 2023, to provide that this State will apply another state’s Convenience of the Employer Rule on nonresidents, which would be the same as the one in the nonresident’s home state. For example, compensation earned by a telecommuting New York resident working for a New Jersey employer will be deemed New Jersey source income by applying New York’s Convenience of the Employer Rule.

Who does the Convenience of the Employer Rule apply to?
The new law only applies to nonresident employees working for a New Jersey employer who are residents of states that also impose a similar test, such as Delaware, Nebraska, and New York. Note that this list may change accordingly based on the laws of different states. Under the new law, wages earned by residents of , Delaware, Nebraska, and New York working for a New Jersey employer and working from an out-of-state location (e.g. telecommuting from their resident state) are allocated to New Jersey, unless they are working remotely due to the necessity of the employer, rather than their own convenience.

Who does the Convenience of the Employer Rule not apply to?
This legislation does not apply to Pennsylvania residents who work in New Jersey, since there is a Reciprocal Agreement in place with that state. Based on the reciprocal nature of Connecticut’s law, an employee who works from home in Connecticut for a New Jersey employer will not be subject to New Jersey’s convenience of the employer rule. However, for more information regarding the application of Connecticut’s rule, see the above link to the webnotice.

How does a nonresident employee working for a New Jersey company qualify as an exception from the Convenience of the Employer Rule?
A nonresident employee working for a New Jersey company that is working outside of New Jersey due to the necessity of the employer is given an exception from the Convenience of the Employer Rule. Generally, based on other states’ Convenience of the Employer rules, they must be given a task by the employer that can only be fulfilled outside of New Jersey, and it is impossible to do the work in New Jersey. For example, if a New York resident employee working for a New Jersey painting company is tasked with painting houses in New York; that work would qualify as an exception, since there is no possible way for that work to have been performed in New Jersey.

How has New Jersey taxed nonresident telecommuters working for a New Jersey employer prior to the enactment of the Convenience of the Employer Sourcing Rule?
With regard to nonresident telecommuters working from home for a New Jersey employer to perform work or services, only the telecommuting employee’s home state taxes the income. If the nonresident telecommuter working for a New Jersey employer comes into New Jersey for work or services, even occasionally, this individual is considered to have New Jersey source income and must file and pay tax on this income in New Jersey on the nonresident income tax return (NJ-1040NR).

Note that this treatment has not changed for nonresidents of states that do not impose a Convenience of the Employer Rule on New Jersey residents.

How does the new law affect New Jersey employers?
New Jersey employers should withhold New Jersey Gross Income Tax on Delaware, Nebraska, and New York resident employees who are working remotely (e.g., in an out-of-state location) for their own convenience.

How is a “New Jersey employer” defined for withholding purposes?
A New Jersey employer is someone who maintains an office or transacts business within this State and makes payment of any salaries, wages and remuneration subject to New Jersey Gross Income Tax or makes payment of any remuneration for employment subject to contribution under the New Jersey unemployment compensation law. N.J.S.A. 54A:7-1.

If an employer with multiple offices in several states, including New Jersey, employs a resident of Delaware, Nebraska, and New York, are they considered a New Jersey employer?
When an employer has multiple offices in several states, including New Jersey, New Jersey will apply the nonresident’s home state’s Convenience of the Employer rule test to determine whether the employer is considered a New Jersey employer. For example, if a New York resident taxpayer has an assigned or primary office (i.e., generally the office out of which the employee is supervised) in New Jersey; that will be considered a New Jersey employer.

Are wages earned by Delaware, Nebraska, and New York resident employees allocated to New Jersey if their employer has offices in several states, including New Jersey, and they work from all these locations, in addition to working from home in their home state?
The employee should have a primary or assigned office. If that primary or assigned office is New Jersey, wages earned by telecommuting Delaware, Nebraska, and New York resident employees are allocated to New Jersey, unless they are working remotely due to the necessity of the employer rather than the employee’s convenience.

For example, what if a New York resident works from a vacation home in a third state, such as Maine or Connecticut? Does the new Convenience of the Employer rule source those wages from the third state to New Jersey?
The Convenience of the Employer rule applies to the third state because the statute isn’t limited to the situation where the New York resident works remotely solely from their home state.

If a Delaware, Nebraska, and New York resident employee working for a New Jersey company doesn’t physically work in New Jersey in a calendar year at all, would P.L.2023, c.125 apply to such employee?
In general, a minimum connection is required for taxation. Thus, for residents of those states imposing a Convenience of Employer rule, if an employee performs no services in New Jersey, even if employed by a New Jersey employer, wages are not allocated to this State under P.L.2023, c.125.

When does the new law take effect?
The new law is retroactive to January 1, 2023. Affected taxpayers must begin withholdings and/or making estimated payments for tax year 2023 as soon as possible and are required to have proper tax paid by April 15, 2024. Employers should consider making adjustments to withholdings as an accommodation to employees, so that they are not underpaid.

Will the Division impose penalty and interest on Tax Year 2023?
The Division will waive penalty and interest, as long as the taxpayer is complying with the new law by September 15, 2023. Such waiver from penalty and interest in accordance with Convenience of the Employer Rule changes can only be granted once assessed and the taxpayer is notified (billed). You should send your request for relief to the address listed on your billing notice, and specify that you are requesting relief due to the Convenience of the Employer Rule changes.

Re: CA resident working remotely for NY state

maglib — Wed, 24 Apr 2024 21:56:39 GMT

POST 2006/ post Hayes rules changed:
Revised application of the convenience of the employer test
For tax years beginning on or after January 1, 2006, it is the Tax Department’s position
that in the case of a taxpayer whose assigned or primary office is in New York State, any normal
work day spent at the home office will be treated as a day worked outside the state if the
taxpayer’s home office is a bona fide employer office (as determined below). Any day spent at
the home office that is not a normal work day would be considered a nonworking day.
A normal work day means any day that the taxpayer performed the usual duties of his or
her job. For this purpose, responding to occasional phone calls or emails, reading professional
journals or being available if needed does not constitute performing the usual duties of his or her
job.
Factors to apply to determine if a home office is a bona fide employer office
Employees should use the factors provided below to assist them in determining if their
home office constitutes a bona fide employer office. The factors are divided into three
categories: the primary factor, secondary factors, and other factors. In order for an office to be
considered a bona fide employer office, the office must meet either:
a) the primary factor, or
b) at least 4 of the secondary factors and 3 of the other factors.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 3 -
Primary Factor
The home office contains or is near specialized facilities.
If the employee’s duties require the use of special facilities that cannot be made available
at the employer’s place of business, but those facilities are available at or near the employee’s
home, then the home office will meet this factor. For example, if the employee’s duties require
the use of a test track to test new cars, and a test track is not available at the employer’s offices in
New York City, but is available near the employee’s home, then the home office will meet this
factor. In the alternative, if the employee’s duties require the use of specialized scientific
equipment that is set up at the employee’s home (or at a facility near the employee’s home) but
could physically be set up at the employer’s place of business located in New York, then the
home office would not meet this factor.
Secondary Factors
1) The home office is a requirement or condition of employment.
If the employer requires the employee to work from his or her home office as a condition
of employment, the home office will meet this factor. For example, if a written employment
contract states the employee must work from home to perform specific duties for the employer,
then the home office will meet this factor.
2) The employer has a bona fide business purpose for the employee’s home office
location.
If the employer has a bona fide business purpose for establishing an office in the locale
where the employee’s home is located, the home office will meet this factor. For example, if the
employee is an engineer working on several projects in his or her home state and it is necessary
that the employee have an office near these projects in order to meet project deadlines, then the
home office will meet this factor.
3) The employee performs some of the core duties of his or her employment at the
home office.
If some of the core duties of employment are performed at the home office, then the
home office will meet this factor. For example, the core duties of a stock broker include the
purchase and sale of stock. Accordingly, if the stock broker executes stock purchases and sales
from the home office, this would constitute performing some of the core duties at the home
office. However, if the stock broker merely reads business publications on the weekend, this
would not constitute performing any core duties at the home office.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 4 -
4) The employee meets or deals with clients, patients or customers on a regular and
continuous basis at the home office.
If an important part of the employee’s duties include physically meeting with clients,
patients or customers in the normal course of the employer’s trade or business, and those
meetings are performed on a regular and continuous basis at the home office, then the home
office will meet this factor. For example, the employer has clients located near the employee’s
home office and the employee must meet with the clients once a week to perform the duties of
his or her job. If the meetings with clients are on a regular and continuous basis at the
employee’s home office, then the home office will meet this factor.
5) The employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business.
If the employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business, then the home office will
meet this factor. For example, an employer wishes to reduce the size of the office space
maintained in New York to decrease rental expenses and, therefore, no longer provides
designated office space or other regular work accommodations for one of its employees. Instead,
the employer allows the employee to work from the employee’s home. If the employee must
come to the office, the employee must use the “visitors” cubicle, conference room, or other
available space that is also used by the other employees of the company. In this instance, the
home office will meet this factor.
6) Employer reimbursement of expenses for the home office.
If the employer reimburses the employee for substantially all of the expenses (e.g., utility
expenses, insurance) related to the home office, or the employer pays the employee a fair rental
value for the home office space used and the employer furnishes or reimburses the employee for
substantially all of the supplies and equipment used by the employee, then the home office will
meet this factor. For purposes of this factor, substantially all of the expenses means 80% or more
of the expenses.
Other factors
1) The employer maintains a separate telephone line and listing for the home office.
2) The employee’s home office address and phone number is listed on the business
letterhead and/or business cards of the employer.
3) The employee uses a specific area of the home exclusively to conduct the business of the
employer that is separate from the living area. The home office will not meet this factor if
the area is used for both business and personal purposes.
TSB-M-06(5)I
Income Tax
May 15, 2006
- 5 -
4) The employer’s business is selling products at wholesale or retail and the employee keeps
an inventory of the products or product samples in the home office for use in the
employer’s business.
5) Business records of the employer are stored at the employee’s home office.
6) The home office location has a sign indicating a place of business of the employer.
7) Advertising for the employer shows the employee’s home office as one of the employer’s
places of business.
😎 The home office is covered by a business insurance policy or by a business rider to the
employee’s homeowner insurance policy.
9) The employee is entitled to and actually claims a deduction for home office expenses for
federal income tax purposes.
10) The employee is not an officer of the company

Re: CA resident working remotely for NY state

TomD8 — Thu, 25 Apr 2024 15:08:09 GMT

@maglib @kristinelbly --

Arguments aside, there is likely to be a fairly minimal effect on a NJ taxpayer's bottom line based on whether or not he pays NY income tax. That's because income tax rates in the two states are similar, and NJ will allow a credit on its tax return for income taxes paid to NY on income which is also taxed by NJ.

NY's "convenience" rule primarily punishes its neighboring states, by diverting tax revenue away from them and toward New York.

On this topic, it's interesting to note that Arkansas repealed its "convenience" rule in 2021, and also that a bill has been introduced in the Nebraska legislature to repeal its "convenience" rule. If the Nebraska law passes, the number of states with a convenience rule will drop to 4: New York, Pennsylvania, Delaware, and New Jersey (although NJ's convenience rule applies only to residents of NY or DE).

Re: CA resident working remotely for NY state

maglib — Tue, 07 May 2024 15:01:54 GMT

https://www.nbcnewyork.com/news/local/nj-offers-telecommuting-residents-reward-to-successfully-appeal-ny-income-tax/5349860/

Still ongoing. I hope NJ wins as that would mean significant money in our pocket.

Re: CA resident working remotely for NY state

lemonswee — Sat, 11 Apr 2026 04:00:51 GMT

@kristinelbly , @TomD8 ,

Hi everyone, I’m facing a similar tax issue.

I started a 100% remote job (8/18/2025) with a NY-based bank but work entirely from my home in Cleveland, OH. I’m not required to go to NY and only visited one day in December 2025 for a company xmas party and to meet colleagues.

Withholding issue: My employer withholds NY state tax and refuses to withhold OH tax due to the cost of setting up Ohio payroll. I have an email from HR stating they do not currently file in OH and would incur additional costs to do so, so they plan to continue NY withholding and asked me to consult a tax professional.

Filing: I filed a NY nonresident return (MFJ). TurboTax didn’t allow $0 NY income, so I entered $1. I expect to receive an audit letter (request for additional information) from NY within two weeks.

Questions:

Based on my situation, do I qualify for exclusion under the “convenience of the employer” rule? Do I have any NY tax liability?
What type of letter should I request from my employer? (They are concerned it could trigger OH tax obligations.)
For 2026, should I avoid traveling to NY altogether (even for a 1-day company event) to prevent tax issues?

Thank you in advance for any guidance!