If You Telecommute from Outside New York, Are You Subject to New York State Income Tax?

If you work for an employer located in New York State, you may be subject to New York State income tax on all your earnings from that work, even if you telecommute from your home in another state. This is because of New York State's application of the convenience of the employer test.

A New York State resident would generally be subject to New York State income tax on income from all sources. A nonresident would be subject to state income tax on revenue from New York sources. Generally, work performed for a New York employer from outside the state would be excluded from state income tax only when because of the necessity, and not the convenience, of the employer the employee had to perform duties out of state because by their nature they couldn't be performed at the employer's place of business.

As explained by David S. Joachim in an article for The New York Times, if you work outside the state as a job requirement, you are only subject to New York State income tax on the days you work in New York. But if you work outside New York for your own convenience, you are subject to New York State income tax on all your income. The only exception would be if you never work in New York the entire year.

In its memorandum on the revised application of the convenience of the employer test in 2006, the New York State Department of Taxation and Finance established that days worked from a home office can be considered work outside New York if the home office is a "bona fide employer office".

As indicated by C. Andrew Lafond and Jeffrey J. Schrader in the Journal of Accountancy, there are different ways to establish a home office as a bona fide employer office. One way would be to establish that your home office is close to specialized facilities (such as specialized scientific equipment set up at a facility near your home) that are not available at the employer's place of business in New York. Another way is to meet a combination of a series of secondary and other factors.

Secondary factors include a home office as a requirement or condition of employment; meeting with clients, patients or customers on a regular and continuous basis at the home office; the employer does not provide you with office or regular work space at the regular place of business; and the employer reimburses you for your home office expenses.

Other factors include maintaining a separate telephone line for work; having your home address and phone number on your employer's business letterhead or business cards; using the home office exclusively for the employer's business; storing a supply of products or samples in your home; storing the employer's business records in your home office; having the employer's sign in your home office as a place of business; and having your home office identified in advertising as a place of business of the employer, among others.

Taxpayers who live in states that have a state income tax could potentially be subject to double taxation if their income is taxable in New York. You may be subject to tax in your home state on income from all sources, and in New York on your income from a New York employer. Many states allow a credit for income taxes in another state, but not all. As indicated by Amy Impellizzeri in examiner.com one of those states is Connecticut. So telecommuters in Connecticut would be taxed twice on their New York income.

Sources:
Amy Impellizzeri, "Telecommuting: why tax laws may be the reason it is not more popular" '" examiner.com
C. Andrew Lafond and Jeffrey J. Schrader, "State Taxation of Telecommuters" '" Journal of Accountancy
David S. Joachim, "Telecommuters Cry '˜Ouch' to the Tax Gods" '" The New York Times
New York Tax Treatment of Nonresidents and Part-Year Residents - Application of the Convenience of the Employer Test to Telecommuters and Others '" New York State Department of Taxation and Finance
Nicole Belson Goluboff, "Two-Timing Telecommute Taxes" '" newgeography