Convenience of the Employer Rule

The convenience of the employer rule is a state income tax sourcing rule that allocates a nonresident employee's remote work days to the employer's state when the employee works remotely for their own convenience rather than because the employer requires it. New York's regulation, 20 NYCRR 132.18(a), states the underlying test: an allowance for days worked outside the 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."

Remote work taxes covers the wider problem this sits inside, including which state may tax what and how a resident credit relieves the overlap. This page covers the rule itself: when it applies, how the test for escaping it is actually scored, and what does not count as a working day.

The rule is one-directional, and knowing that immediately narrows who should worry. New York's guidance is explicit: days worked at home "are considered New York work days only if the employee's assigned or primary work location is at an established office or other bona fide place of business of the employer ... in New York State. If the employee's assigned or primary work location is at an established office or other bona fide place of business of the employer outside New York State, then any normal work day worked at home would be treated as a day worked outside New York State." A fully remote employee with no assigned office in the state is in a different position from one whose desk is in Manhattan.

The escape has a published score, and that score is the most useful thing on this page. For tax years beginning on or after January 1, 2006, a normal work day at a home office is treated as a day worked outside New York if the home office is a bona fide employer office. To qualify, the office "must meet either: a) the primary factor, or b) at least 4 of the secondary factors and 3 of the other factors." There are six secondary factors and ten other factors, so the arithmetic of the second route is four out of six plus three out of ten.

The primary factor is written to be hard to satisfy. It reads: "The home office contains or is near specialized facilities." The guidance's own illustration is an employee whose duties require a test track to test new cars, where no test track is available at the employer's New York offices but one is near the employee's home. It then supplies the counter-example: equipment set up at home that could physically have been set up at the employer's premises does not meet the factor. Ordinary desk work, however genuinely remote, will not get there.

The six secondary factors, in substance. The home office is a requirement or condition of employment. The employer has a bona fide business purpose for an office in that locality. Some of the core duties of the job are performed there. Clients, patients or customers are met there on a regular and continuous basis. The employer does not provide designated office space or other regular work accommodations at one of its regular places of business. And the employer reimburses substantially all of the home office expenses, or pays a fair rental value and furnishes substantially all the supplies and equipment. On that last one the guidance supplies a number: "substantially all of the expenses means 80% or more of the expenses."

The ten other factors are physical and unglamorous, which is the point of them. A separate telephone line and listing for the home office. The home address and phone number on the employer's letterhead or business cards. An area of the home used exclusively for the employer's business and separate from the living area. Inventory or product samples kept there where the employer sells at wholesale or retail. The employer's business records stored there. A sign indicating a place of business of the employer. The home office appearing in the employer's advertising. Coverage by a business insurance policy or a business rider on the homeowner's policy. The employee actually claiming a federal home office deduction. And the employee not being an officer of the company.

What counts as a working day is defined narrowly and matters as much as the factors. A normal work day means "any day that the taxpayer performed the usual duties of his or her job," and the guidance adds that "responding to occasional phone calls or emails, reading professional journals or being available if needed does not constitute performing the usual duties." A day spent that way is a nonworking day, which leaves it out of both sides of the fraction rather than counting against the taxpayer.

The rule reaches local taxes as well. New York applies the same analysis to the Yonkers nonresident earnings tax, so the question is not confined to the state-level income tax. For a part-year resident, the test applies only to the nonresident portion of the year, and the day count is taken over that period alone.

Which states apply a version of it is genuinely a moving target, and some versions are conditional. Three that can each be cited to their own law or revenue department: New York, whose rule is unconditional and is the one described above; Connecticut, whose Circular CT states that "residents of states with a 'convenience of the employer' test will be subject to similar rules for work performed for a Connecticut employer"; and New Jersey, which added a comparable provision to N.J.S. 54A:5-8 in 2023, applying a similar New Jersey sourcing rule where a nonresident's own state of residence sources compensation to the employer's location on convenience grounds. Other states apply versions of the rule, and states have both adopted and dropped it, so the current position is a question for the revenue department of the state the employer sits in rather than something to take from any list, including this one.

Applying the rule, in order.

1. Locate the assigned or primary work location. If it is an established office of the employer inside the taxing state, the rule is in play. If it is outside, normal work days at home are days worked outside the state.

2. Count normal work days only. Days spent answering occasional calls or emails, reading professional journals or simply being available are nonworking days and drop out.

3. Test the home office against the factors. Either the primary specialized-facilities factor, or at least four of the six secondary factors and three of the ten other factors.

4. Allocate. Days at a qualifying home office count as worked outside the state. Days at a home office that does not qualify count as worked inside it.

5. Apply the fraction to compensation and file the nonresident return.

A hypothetical example. Rafi lives outside New York, and his assigned work location is his employer's Manhattan office. He works 200 days in the year: 50 of them in Manhattan and 150 at his home office. His compensation for the year is $180,000.

If his home office is not a bona fide employer office, all 150 home days are treated as New York work days. The New York fraction is 200 over 200, so the whole $180,000 is New York source income even though he was physically in the state on a quarter of his working days.

If the home office does qualify, the 150 days are days worked outside New York. The fraction becomes 50 over 200, or 25 percent, and $180,000 times 0.25 gives $45,000 of New York source income. The difference between the two outcomes is $135,000 of income moving between states, decided entirely by a scorecard about a room.

A taxpayer does not choose whether the rule applies, so the useful lens is what it does and where it lands badly.

The case for it, and what is workable about it

• It attaches tax to the office an employee is assigned to, which stops an employer's state losing revenue every time an employee chooses to work from a kitchen table.
• The test for escaping it is published, itemized and scored, so a taxpayer can assess their position in advance instead of arguing about intent.
• It only reaches employees whose assigned office is in the state, so genuinely remote hires with no office there are outside it.
• The narrow definition of a normal work day protects an employee who occasionally checks email on a day off.

Where it goes wrong

• It taxes income earned in a place the employee never entered, which is the result most people find hardest to accept.
• The home state's credit for tax paid elsewhere may not fully relieve the outcome, so the same wages can bear more tax than either state alone would have charged.
• The primary factor is drafted around specialized physical facilities, so ordinary knowledge work cannot reach it however genuinely remote the job is.
• Several of the other factors depend entirely on what the employer chooses to do: a sign, a listed phone line, an address on letterhead, reimbursement of expenses. The employee cannot supply them alone.
• Employer-required remote work is the exception the rule turns on, but proving the requirement rests on documents the employee may never have been given.