TSB-M-06(5)I Income Tax May 15, 2006 - 2 - Current application of the convenience of the employer test The instructions for Form IT-203-B, relating to Schedule A, Allocation of Wage and Salary Income to New York State, provide that: Work days are days on which you were required to perform the usual duties of your job. Ronda Lee. Connecticut, Delaware, Nebraska, New York, New Jersey and Pennsylvania have a "convenience of the employer" rule. The New York guidance, which comes in the form of an FAQ on the Department's website, . 873, which would allow Connecticut residents and part-year residents to take credits for income taxes paid to another state that has either a convenience of the employer rule (like New York) or a COVID-19 pandemic-like convenience rule (like . One way to eliminate the problem of necessity versus convenience is to assign the employee to an office in the employee's home state. To be exempt from the Convenience of the Employer rule and instead qualify as a remote, out-of-state employee, you'd need to be working away from your employer's location for their convenience. Some states, including New York, have yet different requirements. For taxable years beginning on or after January 1, 2019, Connecticut will apply the Convenience of the Employer test in determining Connecticut source income of residents of states that apply the same rule. 12-711 (b) (2) (A) provides that for tax years 2016 and after, "compensation for personal services rendered in [Connecticut] for not more than fifteen days during a taxable year shall not constitute income derived from sources" within Connecticut. If you have any questions regarding the Connecticut telecommuting legislation or how this legislation might affect your business or you individually, please contact Marc T. Finer, Tax Partner, at 860-240-6096 or mfiner@murthalaw.com. Connecticut will only impose the convenience of the employer test on workers who are residents of a state that also imposes the convenience of the employer test. With respect to the pandemic-like convenience rule, the new law requires that, in order to get the benefit of the credit, the employee needs to show that he or she performed work . The New Jersey Division of Taxation's nexus relief is limited to telecommuting caused by COVID-19 and is not intended to change the Division of Taxation's position in the Telebright Corp. case. Under this rule, if an employer is located in Connecticut, New York, Delaware, New Jersey, Nebraska, or Pennsylvania, or the employee's principal office of the . Beyond the Lockdowns. The Connecticut Business & Industry Association is the voice of business in Connecticut, with thousands of member . This is known as the "convenience rule." The seven states are Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania. . Conn. Gen. Stat. With respect to the convenience of the employer rule, the new law provides a credit even if the employee was obligated by necessity to work remotely from Connecticut. . . And the gap between those two tallies has been widening steadily since 2013. Given that employees are generally . New York's Convenience of the Employer Rule. However, Connecticut alters the sourcing rule for residents of states that apply the "convenience of the employer" sourcing rule. . A sixth state, Connecticut, applies the convenience rule only if the taxpayer's resident state applies a similar rule for work performed for a Connecticut employer. Then, just a few months ago, in what may be described as an aggressive extension of New York's "convenience of the employer" rule, New York issued guidance according to which the days a nonresident telecommuted from their home outside New York during the pandemic - a "normal work day" - would be considered days worked in New York . Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania—use the Convenience of Employer rule to at least some degree. Connecticut implemented its convenience of the employer test for tax years beginning on or after January 1, 2019. Connecticut Conn. Gen. Stat. It is, however, anything but convenient for taxpayers. FAQ 4 It is currently unclear whether the legislation will be revised to include 2021 and future taxable years as well. Fighting to make Connecticut a top state for business, jobs, and economic growth. Additionally, Connecticut taxes income of nonresidents working from home only when that taxpayer's home state applies a similar tax. 2021HB-06516-R00-BA.DOCX Researcher: RP Page 3 2/24/21 . House Bill 6516 also states that, in determining whether an employer has Connecticut nexus, the Department of Revenue Services may not consider the activities of employees who worked remotely in the state due to COVID-19. Nebraska, New York, and Pennsylvania have issued guidance treating wages paid to employees working remotely during the pandemic as income earned at the employer's location (i.e., effectively treating teleworking days as convenience days). Some 110,000 Connecticut . The convenience rule conundrum . Connecticut will not impose its income tax on the wages that nonresident employees earned during tax year 2020 while working remotely in a state that employs a "convenience of the employer" rule, regardless of whether these nonresident employees were working remotely out of convenience or necessity. First effective in 2019, Connecticut's convenience rule applies only if the taxpayer's resident state applies a similar rule for work performed for a Connecticut-based employer. . For more information on House Bill 6516, please contact Andrew Koutroumanis at (860) 297-5033. The convenience of the employer rule allows some states to impose income tax on employees working remotely in other states for companies located within their borders. In 2019, Connecticut adopted legislation that provided that for determining the Connecticut source income of a nonresident, the nonresident must include income from days worked outside Connecticut for that taxpayer's convenience, if that nonresident's state of domicile also employees the convenience of the employer test (such as New York). Employers should also be concerned about New York's sourcing rule. Connecticut has passed a bill that provides tax relief for 2020 only for employees working remotely who would have potentially had their wages taxed by two states (H.B. R. & Regs. The challenge is that states imposing the convenience of the employer rule generally apply a stringent definition of what constitutes work from home for the . On May 6, 2020, New Jersey expanded on this nexus relief by temporarily waiving the sales tax nexus standard that can be met if an employer has an . The "convenience of the employer rule" (i.e., convenience rule) is a rule some states use for sourcing income earned by nonresidents who . . But your chances for double taxation go up if your employer is based in one of the five states -- Connecticut, Delaware, Nebraska, New York, and Pennsylvania -- that have what's called a . Personal income taxes are currently being collected in New York and Massachusetts under the so-called convenience of the employer rule that Connecticut officials say is being misinterpreted . So . It should be noted that the convenience of the employer rule imposed by Connecticut is unique, as Connecticut only imposes such tax on nonresidents that are residents of a state that also applies a convenience of the employer rule. [+] pandemic, just in time for them to file their 2020 tax returns. Many of these taxpayers are receiving a letter from the Connecticut Department of Revenue Services that includes a reminder of how Connecticut applies its 183-day rule. While this is the exception to the general rule, the following jurisdictions apply a convenience-of-the-employer standard: Arkansas, 6 Connecticut, 7 Delaware 8 (and Wilmington 9), Massachusetts, 10 Nebraska, 11 New York state, 12 certain Ohio municipalities, 13 and Pennsylvania 14 (and Philadelphia 15). The issue centers around the "convenience of the employer rule" that imposes income taxes based on where employees work rather than live. New Hampshire requests that the Court invalidate a Massachusetts regulation with similar effect to the convenience of the employer rule. Convenience Rule. Some states have been enacting a so-called "convenience of employer" rule that subjects employees to state income taxes for the employer's state even if the employee has moved out of state for their convenience. convenience rule; Connecticut applies it only if the taxpayer's resident state applies a similar rule for work performed for a Connecticut employer. Enter the convenience of the employer rule. Walczak said there hasn't been enough "political . This means that a New York resident working at home for a Connecticut employer will qualify under the convenience rule, since New York has implemented the convenience rule. Other states with convenience of employer rules include Connecticut, Delaware, Nebraska and Pennsylvania. . Define For the convenience of the employer. For more information, please contact: Matt Nick, Director, State and Local Tax Services New York's "convenience of the employer" rule (the "Rule") is targeted directly at such situations, and can operate as a trap for the unwary in many cases. 6516, which provides that any Connecticut resident who paid tax to a state that uses a convenience of the employer rule will be allowed a credit. 2. Connecticut. . The convenience of the employer rule basically says that, "If you're working from home for your own convenience and not out of any employer necessity, the state's going to treat that day as a day . 'Convenience of the Employer' The controversy behind the lawsuit was the "convenience of the employer rule," a law in place in seven states, including . shall include income from days worked outside this state for such person's convenience if such person's state of domicile uses a similar test.". The October 19, 2020 guidance restates the same bona fide employer office rule and offers no special rules or exceptions relating to the COVID-19 pandemic, which drove numerous New York-based employees to work outside the state (with many still continuing to do so). New York, and Pennsylvania—it is called the convenience of the employer rule, or just the convenience rule for short. including Connecticut, impose a "convenience of the employer" rule - essentially taxing the employee based on where they work, not where they live. States with the convenience of the employer rule. It also records how many people hold jobs with Connecticut employers, whether they live in this state or another. Seven . to be based in one of seven convenience of the employer, or "convenience rule," states — Arkansas, Connecticut, Delaware, Nebraska, New York, Pennsylvania . With respect to the pandemic-like convenience rule, the new law requires that, in order to get the benefit of the credit, the employee needs to show that he or she performed work in the normal state immediately prior to March 11, 2020. If you live in Connecticut but work in New York, you end up paying income taxes in New York and receiving a credit from the state of Connecticut, known as the convenience rule. This rule states that if the employer requires the employee to work in another . 3. 316 Neb. Delaware Admin. Admin. . The states that have enacted such a rule include Connecticut (effective Jan. 1, 2019 for resident credit purposes), Delaware, Nebraska, New York and Pennsylvania. But Connecticut's 2018 legislation (addressed in our blog here), where Connecticut agreed to allow for resident tax credits for taxes paid to convenience-rule states, should nonetheless provide relief to a Connecticut taxpayer who continues to work from home for their New York employer, for example, in 2021. First effective in 2019, Connecticut's convenience rule applies only if the taxpayer's resident state applies a similar rule for work performed for a Connecticut-based employer. Code § 22-003.01C(1) (emphasis added). 5 Connecticut enacted this income sourcing rule in response to other states that impose convenience rules, including Arkansas, Delaware, Nebraska, New York and . January 24, 2022, 8:43 AM. Technically speaking, it was my employer's requirement for me to work remotely, but at the same time . means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. However, a growing minority of states (currently Connecticut, New York, Pennsylvania, Arkansas, Delaware and Nebraska) utilize convenience of the employer (COE) rules to determine how nonresident remote employees should be taxed on their income. Although the rule is most well-developed in New York, other states, including Arkansas (which recently adopted the rule in a legal opinion), Connecticut, Delaware, Nebraska, and Pennsylvania, also apply the rule. In addition, New York violated the Constitution's due process clause when, "under the banner of employer convenience," it extraterritorially taxed the income Zelinsky earned from his Connecticut . So under the new rules, Connecticut income tax is imposed on convenience days if: (1) the state from which they perform those services is within Delaware, Nebraska, New York, or Pennsylvania (because this new Connecticut rule is invoked only when nonresident employees are residents of a state also imposing a similar rule), and The Department adopted the "bona fide employer office" test in 2006 as its way of applying the convenience of the employee rule to employees that work from home. On March 4, 2021, Governor Lamont signed H.B. It is important to be aware of the change to Connecticut compensation sourcing rules and how it may impact you, since the proper allocation of income to Connecticut may change for 2019 and subsequent years because of the convenience of the employer test. Connecticut passed a Covid-19-relief tax law to help commuters working from home during the . And, Massachusetts (a state referenced above) has also passed a similar temporary rule due to the COVID-19 pandemic that is effective through the . All those employees from Connecticut or New Jersey, who normally commute to Manhattan and are now sheltering in place, are facing the reality that their wages earned while sheltering in place will still be subject to taxes by the Empire State. 5 Connecticut enacted this income sourcing rule in response to other states that impose convenience rules, including Arkansas, Delaware, Nebraska, New York and . On February 11, 2021, the joint Finance, Revenue, and Bonding Committee introduced raised bill S.B. Section 003.01C) . The law closed that loophole: "Any resident who paid income tax to any other state that uses a convenience of the employer rule shall be allowed a credit against such resident's Connecticut income tax, for the tax paid to such other state on income earned by such resident while working remotely from this state for said taxable year, including . Of significant importance: the new law applies only to the 2020 tax year . But an email from the NJ Division of Taxation (March 2020) . worked remotely during taxable year 2020 in a state that employs a "convenience of the employer" rule be subject to Connecticut income tax on the income earned while he or she With respect to the pandemic-like convenience rule, the new law requires that, in order to get the benefit of the credit, the employee needs to show that he or she performed work . Specifically, the "convenience . Connecticut filed an amicus brief in support of New Hampshire, as did Arkansas, Hawaii, Indiana, Iowa, Kentucky, Louisiana, Missouri, Nebraska, New Jersey, Ohio, Oklahoma, and Utah. getty. This could . 20(2 . The Connecticut legislation would provide credits for tax . 6516) The bill provides . The application of the traditional Convenience of the Employer Test in the current COVID-19 pandemic presents a number of unique considerations. The new telecommuter rule applies only when nonresident employees are residents of a state imposing a similar rule. State. The convenience rule also has implications for the income tax credit states allow resident taxpayers to claim for taxes paid to other jurisdictions (i.e., resident credit). There has been some uncertainty as to whether New Jersey imposes a convenience of the employer rule in practice. "[The convenience of employer rule] basically provides that if you're a New York employee working from a remote location then you still allocate the wage income to New York on those days because . § 12-711(b)(2)(C) "For purposes of determining the compensation derived from or connected with sources within this state, a nonresident . In the six states where this provision already existed—Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania—it is called the convenience of the employer rule, or just the convenience rule for short. The lockdowns ordered in response to COVID-19 have brought to the forefront a myriad of different state tax rules for telecommuting. Tax season is upon us and there are some key changes in 2022 — including this year's deadline — but most largely stem from pandemic-era tax legislation . 873, which would allow Connecticut residents and part-year residents to take credits for income taxes paid to another state that has either a convenience of the employer rule (like New York) or a COVID-19 pandemic-like convenience rule (like . For calendar years 2021 to 2024, employees would have to spend more than 30 days for their out-of-state income to be taxed, according to the bill. Most states consider wages earned while working within their borders as theirs to tax. The Tax . Convenience of Employer Test Generally, states will tax income that is earned within the state. The Convenience of Employer rule essentially says that any income you earn for a company will be taxed in the employer state, regardless of your residency status. (Public Act 18-49, Sec. With respect to the convenience of the employer rule, the new law provides a credit even if the employee was obligated by necessity to work remotely from Connecticut. Pennsylvania) apply the convenience rule; Connecticut applies it only The seven states which have so-called convenience of employer rules, including the temporary Massachusetts' measure, are New York, Arkansas, Connecticut, Delaware, Nebraska and Pennsylvania . Connecticut also recommends that taxpayers who spent too much time in the state consider filing resident returns under Connecticut's recent amnesty program, which was . No. Several states, including Connecticut, deemed the pandemic to be "for the convenience of the employer," which means any Connecticut resident who paid income tax to another state as a nonresident employee may claim a tax credit against Connecticut income tax (H.B. 6516). States with convenience-of-employer rules include Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania. No. There are a handful of states that impose a so-called (and misnamed) "convenience of the employer rule" to determine whether that state will tax the wages of a telecommuter. To add to the complexity, Connecticut, Delaware, Nebraska, New York, New Jersey, and Pennsylvania have a "convenience of the employer rule": if the employer is requesting that the employee work in a different jurisdiction, then, for state income tax purposes, the employee is subject to withholding based on the location of the second location. But because the rule remains the same, employers in this situation should . For example, meals you provide at the place of work so that an employee is available for emer- gencies during his or her lunch period are generally con- sidered to be for your convenience. Massachusetts is a newcomer to the list, as it. Connecticut. Under recently enacted legislation and effective January 1, 2019, Connecticut income tax is imposed on nonresidents who perform their services outside of the state for the convenience of the employee. . Basically, the rule says that if an employee works from home for his or her own convenience, and not because of any requirement of the employer, those days worked at home will be treated as days worked at the employee's assigned work location. The main exception is where the remote work location is necessary to perform their job duties. Convenience of the Employer Rule The convenience of the employer rule in Arkansas, Connecticut, Delaware, Nebraska, New York and Pennsylvania creates yet another layer of concern for double taxation. However, because the Rule seeks to tax the wages of non-resident employees flowing from . It is, however, anything but convenient for taxpayers. 20(2)(C)) Delaware (2017 Delaware Schedule W) Nebraska (N eb. Under this rule, an individual's work from outside of her employer's state is sourced to the employer's location unless the employee's work location is for the employer's convenience. STATE OF CONNECTICUT TAXPAYER SERVICES SPECIAL BULLETINDEPARTMENT OF REVENUE SERVICES 450 Columbus Blvd Ste 1 Hartford CT 06103-1837 . Connecticut recently enacted legislation, for the 2020 tax year, allowing residents to claim a tax credit . For more information on House Bill 6516, please contact Andrew Koutroumanis at (860) 297-5033. On February 11, 2021, the joint Finance, Revenue, and Bonding Committee introduced raised bill S.B. The Convenience of the Employer Rule. Unless employees live and work in a state with no income tax, they may be taxed twice. 2020), Connecticut (for CT nonresidents domiciled in a state with its own convenience test), New York, Delaware, Nebraska, and Pennsylvania. New York employers have allowed many of their employees to telecommute and have flexible work schedules. Any resident who paid income tax to any other state that uses a convenience of the employer rule shall be allowed a credit against such resident's Connecticut income tax, for the tax paid to such other state on income earned by such resident while working remotely from this state for said taxable year, including while obligated by necessity to work remotely from this state. Connecticut (Public Act 18-49, Sec. House Bill 6516 also states that, in determining whether an employer has Connecticut nexus, the Department of Revenue Services may not consider the activities of employees who worked remotely in the state due to COVID-19. This Week's Developments . • Six states—Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania—had implemented so-called convenience rules prior to the . 1.
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