October 23, 2020
New York issues guidance on the nonresident income tax liability to employees working temporarily outside of the state due to COVID-19
In its frequently asked questions (FAQs) concerning filing requirements, residency and telecommuting for New York state personal income tax, the New York Department of Taxation and Finance (the "Department") states that the rules set forth in its 2006 guidance on telework (Technical Services Division Memorandum TSB-M-06(5)I) continues to apply when employees are working remotely from outside the state due to COVID-19.
New York is one of several states that imposes what is called the "convenience of the employer" test in determining if an employee working from a home office outside of the state is liable for nonresident income tax. Under this test, nonresident income tax applies if the employee is working outside of the state for the employee's own convenience rather than the necessity of the employer and the employee spends at least one day in New York in the calendar year. Conversely, if the telework is out of the necessity of the employer, nonresident income tax does not apply.
The Department provided further guidance on this topic in Technical Services Division Memorandum TSB-M-06(5)I that, for years beginning on or after January 1, 2006, any normal work day spent at the taxpayer's home office will be treated as a day working outside New York if the taxpayer's home office is a "bona fide employer office." For an employee's home office to be considered a "bona fide employer office," it must meet either (1) the primary factor or (2) at least four of the secondary factors and at least three of the other factors as summarized in the chart below.
New York factors used in determining if telework is for the necessity of the employer
Ernst & Young LLP insights
The New York Department of Taxation and Finance has now confirmed that it is making no exception to its "convenience of the employer" test pursuant to telework necessitated by COVID-19. Under the current guidelines set forth in Technical Services Division Memorandum TSB-M-06(5), it will be difficult for most New York employers to conclude that employees working from home outside of the state due to COVID-19 are exempt from New York nonresident income tax and withholding.
The factors used in reaching a decision about the applicability of New York nonresident income tax to teleworkers are complex. Accordingly, business should consider consulting with their employment tax advisors in reaching a conclusion.
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