Which State Taxes You When You Work Remotely? A New York Example

If your employer's office is in a different state from your home, that state may still tax the days you work from home. New York's published guidance on its "convenience of the employer" rule works as one worked example. Everything below describes New York's published position, not a universal rule, and it is not tax advice.

1. The basic rule for nonresidents

New York says that as a resident you pay state tax on all your income no matter where it is earned, while as a nonresident you pay only on New York source income, which includes earnings from work performed in the state.

For remote workers, the key question and answer from the Department of Taxation and Finance: if you are a nonresident whose primary office is in New York State, your days telecommuting are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location. Unless the employer specifically acted to establish one, you continue to owe New York income tax on income earned while telecommuting.

The underlying regulation in the department's 2006 memo allocates wages by working days inside and outside New York. Any allowance for days worked outside the state must be based on services that, "of necessity, as distinguished from convenience," obligate the employee to out-of-state duties.

2. When a home office counts as the employer's office

The department's memo (TSB-M-06(5)I, dated May 15, 2006) gives a test for a home office to be a bona fide employer office. It must meet either the primary factor, or at least 4 of the secondary factors and 3 of the other factors.

• Primary factor: the home office contains or is near specialized facilities that cannot be made available at the employer's place of business.
• Secondary factors include that the home office is a requirement or condition of employment, that the employer has a bona fide business purpose for an office in that locale, that the employee performs some core duties there, and that the employee regularly meets clients, patients or customers there.

The memo also defines a normal work day as a day you perform the usual duties of your job. Responding to occasional calls or emails, reading professional journals or being available does not count.

A condition of employment, such as a written contract requiring home work for specific duties, is only one of the secondary factors, so on its own it does not satisfy the test.

3. Being a resident of two places

New York treats you as a resident if your domicile is New York, or if you keep a permanent place of abode in the state for substantially all of the year and spend 184 days or more there. Any part of a day counts as a day, and you need not be at the abode for the day to count. Domicile is your permanent primary home that you intend to return to, and you can only have one.

For anyone who moves to a new state, New York says its domicile does not change until you show clear and convincing evidence that you abandoned it and established a new one elsewhere. Filing a certificate of domicile or registering to vote in the new location is not enough on its own.

4. Not taxed twice, usually

The department states that a person who lives in one state but works in another may have tax liability in both, but typically receives a credit in the state of residence to eliminate double taxation. A New York resident taxed by another state can claim a nonrefundable resident credit, limited to the portion of New York tax that applies to the income taxed by the other state.

The credit applies only to the portion of the tax tied to income sourced to and taxed by the other state while you were a New York resident.

5. Key takeaways

• Residents of New York are taxed on all income; nonresidents only on New York source income.
• Under New York's convenience of the employer test, a nonresident with a primary office in New York owes tax on telecommuting days unless the employer set up a bona fide office at the home location.
• Occasional emails or calls do not make a day a normal work day; usual job duties do.
• New York's resident test includes 184 days plus a permanent place of abode, separate from domicile.
• A credit in the state of residence typically prevents the same income being taxed twice.