The Convenience of the Employer Rule

Here’s how it works. If your employer is based in New York, and you work remotely from another state, New York treats your income as New York-source unless your remote arrangement is a necessity of the employer. “Necessity” means the employer requires you to be out of state — there’s no desk for you in the New York office, or your role can only be done from a specific location outside New York.

Working from home because you want to, because your employer allows it, or because you moved to a cheaper state during the pandemic? That’s convenience. And convenience means New York taxes those wages.

The NY Department of Taxation TSB-M-06(5)I lays out the test. The employer has to assign you to a bona fide office outside New York, and that assignment has to be based on a legitimate business reason. A home office doesn’t count unless the employer has no New York facility where you could perform your duties.

How This Hits NJ and CT Remote Workers

The tri-state area is ground zero for this issue. Before 2020, hundreds of thousands of New Jersey and Connecticut residents commuted into New York daily. When remote work became widespread, many assumed their tax situation would change. It didn’t.

A New Jersey resident working from home for a Manhattan employer still owes New York income tax on those wages under the convenience rule. They also owe New Jersey tax as a resident. New Jersey gives a credit for the tax paid to New York, but the credit only offsets the NJ liability — you’re still paying New York’s full rate (up to 10.9%) on that income.

Connecticut passed its own convenience rule in 2019. If a CT resident works remotely for a NY employer, both states claim the right to tax the income. Connecticut credits the NY tax, but this creates a scenario where the worker pays the higher of the two rates on every dollar, with no break for the days actually worked from home.

The “Bona Fide Employer Office” Exception

There is one way out. If your employer maintains a real office for you in your home state — not a coworking membership, not your kitchen table, but a legitimate employer-operated facility — the income you earn on days you work from that office is sourced to your home state, not New York.

The test is strict. The office must be employer-provided, regularly used, and the primary place where you perform specific duties that can’t be done at the New York location. Working from a WeWork that your employer pays for in Hoboken? That might qualify. Working from your living room because your boss said it’s fine? That does not.

Some employers have set up satellite offices in New Jersey and Connecticut specifically to give their remote workers a leg to stand on. It’s cheaper than paying them enough extra to cover the double-tax hit.

Employer Withholding Obligations

If you’re a New York-based employer with remote workers in other states, you have withholding obligations in every state where those employees work. That means registering with each state’s tax authority, setting up state withholding, and filing quarterly wage reports.

For a company with 50 employees spread across 12 states, this creates a compliance burden that didn’t exist when everyone came into the office. Many small employers don’t realize they need to withhold in the employee’s home state in addition to New York. Getting this wrong creates liability for the employer — not just the employee.

New York expects you to withhold NY tax on remote workers who fall under the convenience rule. The employee’s home state also expects withholding. Running dual withholding on a single paycheck requires payroll software that handles multi-state splits, or a payroll provider that knows what it’s doing.

What If You Moved Out of New York Permanently?

Moving to Florida, Texas, or another no-income-tax state doesn’t automatically free you from New York tax if you keep the same New York employer. Under the convenience rule, the move is for your convenience unless the employer required it. The only clean break is if you switch to an employer that has no New York nexus, or your current employer designates your role as necessarily performed from your new state.

New York also audits domicile changes. If you claim you left but still have an apartment in the city, a storage unit in Brooklyn, or your kids in a New York school, the state can argue you never really left. The 183-day rule gets all the attention, but the domicile analysis looks at your entire pattern of living.

Legal Challenges and Where Things Stand

New Hampshire sued to challenge New York’s convenience rule in 2021, arguing it was unconstitutional for New York to tax workers who never set foot in the state. The Supreme Court declined to hear the case. For now, the rule stands.

Several states have proposed retaliatory legislation or “credit clawback” rules that would deny credits for taxes paid under convenience-of-the-employer rules. None have gained enough traction to change the math for most workers. If you’re caught in this trap, the only real solutions are structural: change employers, get your employer to set up a bona fide office in your state, or negotiate a compensation adjustment that accounts for the double-tax exposure.