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The Permanently Remote Employee

Updated: Oct 25, 2021

By: William L. Bricker, Jr., Maria Pigna, Inhyuk Yoo

Our article posted on November 8, 2020, addressed a number of state and local tax issues faced as a result of the COVID-19 pandemic. The issues were of New York employees working remotely outside of New York. These issues continue as many New York employers are announcing that their work-from-home policies will stay.[1]

New York taxes its residents[2] on their worldwide income and nonresidents on their New York source income.[3] New York considers compensation earned by a nonresident of New York to be New York source income even if the employee telecommutes from outside New York.

New York Convenience Rule

New York’s position is that telecommuting days for a New York employer are considered days worked in New York unless the telecommuting was for the convenience of the employer. This rule, often referred to as “Convenience of Employer Test,” provides:

“…any allowance claimed for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of his employer.”[4]

During the pandemic, many employees assumed that they were working remotely out of necessity, not convenience, and thus their telecommuting days were non-New York days. New York disagreed stating that "if you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in [New York] unless your employer has established a bona fide employer office at your telecommuting location."[5]

This guidance remains in force, and thus, New York nonresident employees working from home are subject to New York income tax on their wages unless they can show that they telecommuted due to the necessity of the employer.[6]

Relief for Employees

Some states provide a degree of relief in the form of credit for their residents working from home for employers in other states.

For example, if a New Jersey resident is telecommuting for a New York employer, New Jersey provides a credit up to the amount of the tax the employee would have paid if the income was earned in New Jersey. Although this approach protects an employee from double taxation, the employee is still subject to higher New York tax rates.

On March 4, 2021, Connecticut’s Governor signed legislation clarifying that resident telecommuters working for employers in other states would receive a credit for taxes paid to other states.[7] However, this applies only to the 2020 tax year. Without further legislation, New York-based employees who work at home in Connecticut will owe tax to both states.

Effects on Employers

Employers face new challenges since they need to track the locations of their nonresident employees working remotely to comply with withholding rules of the jurisdictions where the employees are located.

Additionally, employers may owe state unemployment taxes to states where their nonresident employees are working. Unlike income taxes, unemployment taxes are generally paid to only one state, and determining which state to pay depends on multiple factors that employers need to consider for each employee.

These challenges can especially impact smaller companies that do not have adequate resources. States, including New York, will tend to go after the employers (instead of employees) for noncompliance because it would be a one-stop shop to recover the loss of revenue.

New Hampshire v. Massachusetts[8]

In October 2020, New Hampshire filed a lawsuit in the Supreme Court, challenging the Massachusetts regulation[9] which taxed New Hampshire residents who telecommuted to Massachusetts during the pandemic. New Jersey and Connecticut filed a joint amicus brief in support of New Hampshire, citing their loss of revenue to New York. The Supreme Court declined to hear the case in June 2021.

This, however, is not necessarily the end of the road for nonresident employees affected by the Massachusetts regulation or by New York’s convenience rule. As more employers adopt long-term remote work policies, these issues will remain at the forefront of the state and local tax discussions.


[1] ; [2] A New York resident is someone who is either domiciled in New York, or maintains a permanent place of abode in New York, and spends more than 183 days in New York. New York Tax Law § 605(b). A New York domiciliary, however, is not considered a resident if they (1) did not maintain a permanent place of abode in New York at any time during the year, (2) maintained a permanent place of abode outside of New York during the entire year, and (3) spent 30 days or less in New York during the tax year. [3] Although the New York City residency rules are the same with the substitution of “City” for “State, New York City, unlike New York State, does not tax its nonresidents. See Lary S. Wolf and Ellen S. Brody et al. v. State of New York, decided April 4, 2000. [4] N.Y. Comp. Codes R. & Regs 20 § Section 132.18(a). [5] State of New York Department of Taxation and Finance, Frequently Asked Questions about Filing Requirements, Residency, and Telecommuting for New York State Personal Income Tax, (Oct. 19, 2020). [6]It is very difficult to show “necessity” because an employee must show that he or she was assigned by the employer to a primary work location at an established or other bona fide place of business of the employer outside of New York. New York Department Memorandum TSB-M-06(5)I. [7] [8] [9] "Massachusetts Source Income of Non-Residents Telecommuting Due to the COVID-19 Pandemic" 830 Mass. Code. Regs. 62.5A.3 (as most recently proposed Dec. 8, 2020).

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