Remote Workers and the Convenience Rule: New York Tax Implications You Can’t Ignore

The Convenience Rule (the “rule”) has been on the books for decades, but the debate over its legality is more feverish than ever as remote work became commonplace following the pandemic. The rule provides that “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” (emphasis added). In other words, New York considers any work performed out of that state that could have been performed at an employer’s New York place of business to be a New York workday. Consequently, the rule requires New York-based employees to source their income for days worked outside of New York to the location of their employer’s office (e.g., New York) unless the employee’s job necessitates the performance of the work at another location.

In one recent New York State Division of Tax Appeals ruling, a taxpayer was denied a refund of New York taxes paid under the Convenience Rule on wages earned during the COVID-19 lockdown. The taxpayer worked from his home in Pennsylvania since, for much of 2020, his office was mandated to be closed under state order. Nevertheless, the judge determined that the employee did not work from home due to the employer’s necessity and thus, under the rule, was subject to New York income tax on his wages earned.

The ruling is consistent with the guidance previously issued by the New York State Department of Taxation and Revenue, which indicates its intention to continue applying the Convenience Rule throughout the pandemic and work-from-orders in 2020 and 2021.

In response to New York’s aggressive assertion of the rule, neighboring states New Jersey and Connecticut have passed regulations targeting the New York law. New Jersey enacted legislation creating a reciprocal convenience test for residents of states with similar policies (e.g., New York). The same legislation also incentivizes successful challengers of New York’s Convenience Rule with a bonus credit equal to 50% of their New Jersey tax liabilities.

Connecticut similarly adopted a reciprocal convenience test in 2019 and recently introduced a fiscal year 2025 budget proposal incentivizing Connecticut residents to challenge New York’s rule, which appears to be inspired by New Jersey’s efforts.

While New York continues to fiercely apply its Convenience Rule, taxpayer challenges are sure to continue. Despite this, employers and employees should be aware of the nuances associated with the rule and its application. Understanding the risks and potential exposure will allow taxpayers to make more informed decisions when filing their payroll and income taxes.

For more information on New York’s Convenience Rule and how it may impact you or your business, please contact Alan Goldenberg, Principal and Leader of the State and Local Taxation (SALT) and Tax Controversy groups, or your Anchin Relationship Partner.