Physical Presence vs. Employer Location

The baseline rule is simple: states tax income earned within their borders. If you’re physically working in State A, State A has the right to tax those wages. Your resident state also taxes your worldwide income, but gives you a credit for taxes paid to other states so you’re not taxed twice.

Remote work breaks this clean model. You’re physically in your home state, but your employer is in a different state. Under the traditional rule, only your home state should tax your wages because that’s where the work is performed. Most states follow this approach. You work from home in Texas for a California company — Texas has no income tax, California doesn’t tax you because you’re not working within its borders. Clean.

But a handful of states decided that wasn’t good enough. They want to tax you based on where your employer is located, regardless of where you sit when you do the work. That’s the convenience-of-employer doctrine, and it’s the source of most remote work tax headaches.

The Convenience-of-Employer Doctrine

New York is the most aggressive state on this front. Under New York’s nonresident allocation rules, if you work remotely for a New York-based employer, your wages are taxed by New York unless you can prove the remote work is for the employer’s necessity — not your convenience. The standard is strict. Having a home office because you prefer it, or because your employer allows it, doesn’t count. New York wants to see that the employer required you to work from another location because the work can’t be performed in New York.

What qualifies as employer necessity? A client-facing role that requires you to be physically present at a client site in another state. A position at a satellite office that the employer maintains because business operations require it. What doesn’t qualify: your employer lets you work from home because it’s cheaper, or because you moved to New Jersey during the pandemic, or because the company adopted a hybrid policy.

Several other states have adopted similar rules or are considering them:

• Connecticut — Enacted its own convenience rule, which mirrors New York’s approach. CT residents working remotely for NY employers face the same double-taxation trap described in our reciprocity agreements guide.
• Pennsylvania — Has applied a version of the convenience doctrine to nonresidents working remotely for PA-based employers.
• Nebraska — Adopted a convenience rule effective in 2024, codified in Neb. Rev. Stat. § 77-2903.
• Delaware — Has historically applied convenience-like sourcing to its residents.
• New Hampshire — Challenged Massachusetts’ pandemic-era convenience rule at the Supreme Court (the court declined to hear it), highlighting how contentious this area remains.

The states that don’t have convenience rules — which is the majority — follow the physical presence standard. California, for example, taxes you on wages for services performed in California per FTB nonresident sourcing guidance. If you’re remote from Nevada working for a San Francisco company, California doesn’t reach your wages (though they’ll look at it closely if you spend time working in California periodically).

The Double Taxation Problem

The convenience rule creates a genuine gap in the credit system. Take a New Jersey resident working fully remote for a Manhattan employer. New York says: all your wages are New York income (convenience rule). New Jersey says: all your wages are New Jersey income (you’re physically here). New Jersey gives you a credit for New York taxes paid — but only on the income New Jersey agrees is New York-sourced, which is zero days since you never set foot in New York.

The result: you pay New York tax on 100% of your wages and New Jersey tax on 100% of your wages, with no credit to offset the overlap. You’re taxed twice on the same income. This isn’t hypothetical. It happens to thousands of tri-state area workers every year. For a fuller breakdown of which states coordinate and which don’t, see our multi-state tax filing guide.

There’s no federal law requiring states to coordinate their taxation of remote workers. The proposed Multi-State Worker Tax Fairness Act has been introduced in Congress several times but has never passed. Without federal action, the resolution depends on litigation, interstate compacts, or individual states changing their rules — none of which are moving quickly.

Employer Withholding Obligations

Remote work doesn’t just create tax problems for employees. Employers face their own complications. When an employee works from a state where the company doesn’t have a physical presence, the employee’s remote work can create “nexus” — a taxable connection between the company and that state.

Having an employee working from State X can trigger:

• Withholding obligations — The employer may need to register with State X, set up payroll withholding, and file quarterly reports.
• Corporate income tax nexus — An employee’s presence can create enough connection for the state to assert corporate income tax jurisdiction over the employer, a principle reinforced by the Supreme Court’s ruling in Quill Corp. v. North Dakota and its progeny.
• Sales tax nexus — In some states, having employees present triggers a sales tax collection obligation, especially after South Dakota v. Wayfair broadened nexus standards.
• Franchise tax, gross receipts tax, and other business taxes — Each state has its own rules about what activities create a filing obligation.

Many employers are still catching up. During the pandemic, most states issued temporary guidance exempting remote workers from creating nexus. Those temporary rules have largely expired. If your employer has remote employees scattered across multiple states, they should be reviewing their withholding registrations and nexus exposure now — not at year-end when the damage is done. Employers structured as S corporations or LLCs face additional pass-through considerations in each nexus state.

COVID-Era Temporary Rules: Mostly Expired

When offices shut down in March 2020, states scrambled. Most issued temporary guidance saying that employees working remotely due to COVID wouldn’t create new withholding or nexus obligations for their employers. Some states extended these waivers through 2020, others through 2021.

Almost all of those temporary rules have now expired. As of 2025, the pre-pandemic rules apply in nearly every state. If your employer is still relying on 2020-era guidance to justify not withholding in the state where you’re actually working, that position is no longer defensible.

The exception: Mississippi extended its telework provisions longer than most, and a few states incorporated permanent changes to their sourcing rules. But for the vast majority of states — particularly New York, New Jersey, Connecticut, and California — the temporary grace period is over.

Tracking Days and Allocating Income Between States

If you split time between two or more states, you’ll need to allocate your income based on days worked in each location. This is where recordkeeping becomes everything.

The standard allocation formula for W-2 employees is: (days worked in State X / total working days) x total wages = State X-sourced income. Working days typically means the days you actually worked, not calendar days or days the office was open. Vacation days, holidays, and sick days are usually excluded from the denominator (or allocated to the resident state, depending on the state’s rules).

Keep a daily log or use your calendar to document where you worked each day. Some states accept a signed statement from the employer. Others want granular records. If you work from multiple locations — three days in New York, two days from your Connecticut home — track it from the start of the year. Reconstructing a year’s worth of location data in April is painful and inaccurate.

For the tri-state area specifically: New York counts the days you work in NY, but under the convenience rule it also claims the remote days unless you meet the necessity exception. So your allocation in practice may be 100% to New York regardless of your actual split, unless you can document that a bona fide employer office exists in your home state and you’re assigned to it. The New York DTF Publication 588 outlines the allocation methodology for nonresidents.

Digital Nomads and Multi-State Travel

Working from a different state for a week or two creates a filing obligation in that state if you earn income there. Most states have a de minimis threshold — some don’t trigger withholding unless you earn over a certain amount or work more than a set number of days. But the thresholds vary wildly. New York has no de minimis exception for nonresidents: one day of work in New York creates a filing obligation.

If you’re moving around frequently — working from a parent’s house in Florida for a month, then a friend’s place in Colorado for two weeks, then back to your apartment in New York — each state with an income tax has a potential claim on the wages you earned while physically present there.

Practically, enforcement is thin for short visits. States don’t have the resources to track every business traveler’s daily movements. But the legal obligation exists, and if you’re audited by your home state, the question of where you worked each day will come up. Professional athletes and entertainers get caught by this regularly because states have dedicated audit programs for high-visibility earners. Regular remote workers are less likely to be individually targeted, but the risk isn’t zero — especially at higher income levels. If you’re self-employed and traveling between states, our self-employment tax guide covers the federal side of those obligations.

SALT Deduction and Multi-State Filing

The $10,000 state and local tax (SALT) deduction cap under IRC Section 164(b)(6) adds another wrinkle. If you’re paying state income tax to two states, the combined amount may exceed the cap, meaning you lose the federal deduction on the excess. Before the SALT cap (which runs through 2025), you could at least deduct the full state tax burden on your federal return. Now, multi-state workers paying elevated state taxes get limited relief.

For high earners in the New York tri-state area, the combination of the convenience rule, double taxation on remote days, and the SALT cap means the effective tax rate on remote work income can exceed what a single-state worker pays. This is one reason some employees are negotiating for their employers to establish a bona fide office in their home state — which, if done properly, can break the convenience rule and restore single-state taxation. Business owners exploring pass-through structures may also benefit from the New York PTET as a partial SALT cap workaround.

What Remote Workers Should Do Now

Track where you work. Every day. A calendar entry, a spreadsheet, an app — whatever sticks. This is the single most valuable thing you can do to protect yourself in a multi-state audit.

Talk to your employer about withholding. If your employer is only withholding for their state and you live in a different state, you could owe a large balance (plus penalties for underpaying estimated taxes) when you file your resident return. Make sure withholding reflects where you actually owe tax.

File in every state where you have a filing obligation. Missing a nonresident return doesn’t make the obligation go away. It starts the clock on penalties and interest, and it leaves the statute of limitations open indefinitely in most states. The IRS Publication 505 covers federal withholding and estimated tax rules that interact with your state obligations.

Sources & References

• New York State DTF — Nonresident Allocation and the Convenience Test
• NYS Publication 588 — Nonresident Income Allocation
• California FTB — Part-Year and Nonresident Income Sourcing
• 26 U.S.C. § 164(b)(6) — SALT Deduction Limitation
• H.R. 3051 — Multi-State Worker Tax Fairness Act
• South Dakota v. Wayfair, 585 U.S. ___ (2018) — Economic Nexus Standard
• Supreme Court Order — New Hampshire v. Massachusetts (cert denied)
• IRS Publication 505 — Tax Withholding and Estimated Tax