April 9, 2021
New York bill would provide relief from state and local income tax for certain teleworkers in connection with COVID-19
On March 19, 2021, the New York Assembly introduced A.06607, which would provide relief to businesses whose employees are working from home outside of New York State due to COVID-19 by confirming that such telework is due to the necessity of the employer and not the convenience of the employee, and is therefore exempt from New York state and local income tax and income tax withholding. The New York Senate introduced identical legislation this year (S.00602).
The bill would apply only for the period that employers mandated employees work from home pursuant to the emergency declaration in New York Executive Order 202. Should the bill become law, it would be effective immediately but would apply only to the time covered by the executive order, which is currently March 7, 2020 through April 21, 2021.
Under New York's convenience-of-the-employer rule, the employer is required to withhold state income tax from all wages paid to the employee if (1) the employee spent at least one day of the year in New York and (2) the reason the employee is working from home outside of the state is for the employee's convenience. If the reason the employee is working from home is for the convenience of the employer, work from home may be excluded from the nonresident income tax withholding requirement. (TSB-M-06(5) I.)
Thus far, the New York Department of Tax and Finance has not issued guidance pursuant to COVID-19 and the so-called "convenience of the employer rule," leaving businesses with uncertainty as to how the Department would rule on the matter should employers reach the conclusion that employees working from home outside of New York during the COVID-19 emergency are exempt from New York income tax and income tax withholding. The New York Department of Tax and Finance has received numerous requests to issue guidance similar to that contained in A.06608. For instance, on April 10, 2020, the New York Bar Association issued a letter of recommendation urging COVID-19 relief through the convenience-of-the-employer rule.
Ernst & Young LLP insights
Similar legislation was introduced last year in S.8386; however, it failed to pass. (See EY Tax Alert 2020-1411).
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