You’re trying to do your share to stop global warming, so you persuade your employer to let you work from home. Think of the gas you will save and the burden lifted from the environment. Well, not so fast, if you live in one of the few states with a so-called “Convenience of the Employer” rule. You are going to be so mad when you realize the consequences that the steam rising from the top of your head is going to create more environmental damage than any reduction in carbon output from working at home.
Currently only Delaware, Nebraska, New York, and Pennsylvania have a convenience rule. But effective for tax years beginning on or after January 1, 2019, Connecticut will have one as well, albeit a slightly kinder version. The rule will only apply if the nonresident taxpayer in question lives in a jurisdiction that has its own version of the rule.
The inconvenient part about the convenience rule, simplified for brevity, can be best demonstrated by a simple example.
Blake, a New Jersey resident, is employed by Widget Inc., a company located only in New York State. Being concerned about the environment and wanting to stay home to watch the new puppy, Widget Inc. allows Blake to work from home. Blake travels to New York once or twice a year to check in at headquarters.
New York’s convenience rule would conclude since Blake was not required to work in New Jersey for Widget Inc., all wages would be taxed in New York. New Jersey would conclude that since the services were performed by Blake in New Jersey, the wages are New Jersey source.
Fortunately for Blake, New Jersey is very generous in not looking to the source of the income for determining the resident credit and Blake would escape double taxation. However, no other State has such an all-encompassing credit mechanism to avoid this result.
So now that Connecticut has prospectively adopted the inconvenient convenient test, anyone working for a Connecticut company that is a resident of one of the jurisdictions that also has a convenience rule may end up being subject to double-tax on their wage income. A very inconvenient truth, indeed. If you have questions about the impact on your circumstance, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.
Wayne K. Berkowitz, CPA, J.D., LL.M., a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises clients on the unique requirements of governments and municipalities across the nation.