Feb 18, 2024
New York State’s tax landscape has been notably impacted by the rise of remote work, especially in the aftermath of the COVID-19 pandemic. This shift has prompted significant legislative and administrative changes, affecting payroll tax and remote working arrangements. This article examines recent developments in New York State legislation concerning payroll taxes and the taxation of remote workers, highlighting key rulings and their implications for employers and employees.
One of the most contentious issues in New York’s taxation of remote workers is the “convenience of the employer” rule. This rule stipulates that if an employee works remotely out of personal convenience rather than employer necessity, their income is taxable by New York State. This rule has significant implications for non-resident employees working for New York-based employers.
In a landmark case in January 2024, a New York administrative law judge ruled that a non-resident professor who worked remotely from Connecticut during the pandemic was subject to New York income tax under the convenience of the employer rule. The judge held that the professor did not meet the burden of proving that his remote work was due to the necessity of his employer, thereby making his remote work days taxable by New York (Grant Thornton, 2024).
During the pandemic, many employees were mandated to work from home due to government orders. Despite this, New York maintained that remote work performed during this period still fell under the convenience of the employer rule unless the employer had established a bona fide office at the employee’s remote location (EY, 2024). This interpretation has led to continued taxation of remote work income as New York source income.
With the increase in remote work, compliance with payroll tax obligations has become more complex. Employers must navigate varying state tax laws and ensure proper withholding and reporting for remote employees.
New York has introduced enhanced measures to enforce payroll tax compliance. These include advanced data analytics tools to detect underreporting and discrepancies in payroll tax filings. Employers are now required to maintain rigorous payroll records and ensure accurate tax withholding based on the employee’s location (Experian, 2024).
Employers with remote workers in multiple states face the challenge of managing different state tax obligations. New York’s strict adherence to the convenience of the employer rule means that remote workers could be subject to double taxation—paying taxes in both their state of residence and New York, where their employer is based (Cornell University, 2024).
To navigate these complexities, employers can adopt several strategies to ensure compliance and optimize their payroll tax processes.
Employers should conduct nexus studies to understand their tax obligations in each state where they have remote employees. This helps in identifying which states require payroll tax withholding and reporting.
Investing in advanced payroll software that automatically adjusts for state-specific tax laws can streamline compliance. Such software ensures that the correct amount of tax is withheld and reported based on the employee’s location (Experian, 2024).
Clear remote work policies that outline tax obligations and reporting requirements can help manage compliance. Policies should include guidelines for location reporting and tax withholding adjustments based on where employees are working.
Consulting with tax professionals who specialize in multi-state taxation can provide valuable insights and help navigate the complexities of payroll tax compliance. Professionals can offer strategies to minimize tax liabilities and ensure adherence to state regulations.
Employees working remotely for New York-based companies need to be aware of their tax obligations under the convenience of the employer rule. They should:
Keep detailed records of where they perform their work to support any claims of working outside of New York out of necessity rather than convenience.
Familiarize themselves with the tax laws of their state of residence and how they interact with New York’s tax requirements to avoid unexpected tax liabilities.
Consult with tax advisors to understand potential liabilities and strategies for managing multi-state tax obligations.
The rise of remote work has led to significant legislative and administrative changes in New York State’s payroll tax landscape. The convenience of the employer rule continues to play a central role in determining tax obligations for remote workers. Employers must navigate these complexities by adopting robust compliance strategies and leveraging technology to manage multi-state payroll tax obligations effectively. Meanwhile, employees should stay informed about their tax responsibilities to avoid unexpected liabilities. By staying proactive and informed, both employers and employees can better manage the challenges of remote work taxation in New York.
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Jeroen van der Wal
Business Development Representative
