With more people working from home 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 the “Convenience of the Employer” rule.
What is “Convenience of the Employer?”
Simply put, “Convenience of the Employer” means that an employee is working from home for their own convenience rather than for the convenience of their employer.
Therefore, even though an employee may work in another state, they're considered an “in-house” employee. As such, they're treated as if they're physically employed in the state of their employer, and taxes are withheld for the state where the employer is located, instead of where the employee lives. The employee will then have tax obligations to both the state they live in and the state where their employer is located.
Which states have “Convenience of the Employer” tax laws?
Convenience of the Employer may apply to you if you live 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?
What Factors Would Exempt Me from the Convenience of the Employer rule?
Each state has its own guidelines, restrictions, and conditions regarding defining remote employees. To be exempt from the Convenience of the Employer rule and instead qualify as a remote, out-of-state employee, you'd need to be working away from your employer's location for their convenience. This could happen for several reasons, including the employer needing employees that they can't attract in their home state, or needing employees in multiple locations to serve clients around the country.
Other factors that might designate an employee as a remote worker for their employer's convenience 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 expenses
- 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