As remote work continues to reshape the modern workforce, one complex issue remains for multistate employees: where is your income actually taxed?
The answer often depends on something called the “convenience of the employer” rule, a policy that certain states use to determine whether wages earned while working remotely are taxed in the employer’s state, the employee’s home state, or both.
In general, this rule applies when an employee works from a different state than where their employer is located. For the five states that enforce a full convenience rule, New York, Delaware, Nebraska, Pennsylvania, and Connecticut, income is taxed by the employer’s state unless the remote work is done for the employer’s convenience, not the employee’s.
In other words, if you’re working from home simply because it’s more comfortable or flexible for you, both your home state and your employer’s state may consider that income taxable.
To avoid double taxation, your remote work must be required for business reasons, for example:
Your home is recognized as a bona fide employer office, not just a personal home office.
You must be in a different location to access equipment, data, or resources unavailable in the employer’s home state.
In these cases, you may be considered to be working remotely for the convenience of the employer, and your income would only be taxable in the state where you perform the work.
Some states have taken unique approaches:
Connecticut and New Jersey have retaliatory convenience rules that apply only to residents of states that enforce similar provisions.
For example, if a New York resident works from home for a New Jersey company, their wages are taxable in both New York and New Jersey.
However, if a Kansas resident works remotely for that same New Jersey employer, their income is only taxable in Kansas.
Oregon applies its rule only to nonresident managerial employees working for U.S. employers.
Certain neighboring states, such as New Jersey and Pennsylvania, have reciprocity agreements that override these convenience rules altogether, simplifying tax obligations for residents working across state lines.
While this setup might sound like double taxation, that’s not entirely the case. Your home state generally provides a tax credit for taxes paid to another state. However, if your home state’s tax rate is lower than that of your employer’s state, you could still end up paying more overall than if your employer were based in your home state.
The convenience of the employer rule is a tricky area of multistate taxation that can easily trip up remote workers and their employers alike. Understanding where your wages are taxable—and when exceptions apply—can help you avoid surprises at tax time.
If you work remotely for an out-of-state employer, it’s a good idea to speak with a tax advisor who understands your state’s rules and any reciprocity agreements that may apply.
Need help navigating multistate tax rules? Our team at Alloy Silverstein is here to help you understand your specific situation and plan ahead for tax season.
Associate Partner
Julie has over 20 years of experience in public and private accounting, representing varied clientele including the medical, legal, and real estate industries and trusts.
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