Employees who telework across state lines—in other words, whose homes are in one state while their employers are in another—may owe taxes in two states on the same income. Several states, including New York, New Jersey, and Pennsylvania, have adopted the “convenience of employer’’ rule. Under this rule, if you telework for an employer in
another state, you may be required to pay taxes to both your home state and the employer’s state on the income you earn working at home. You might be able to obtain a tax credit from your home state for the taxes you pay to your employer’s state. However, you’ll still end up paying more tax if your employer’s state tax rate is higher than that for your home state.
That’s what happened to Thomas Huckaby, a Tennesseebased computer programmer who teleworked for a firm in
Queens, New York. In 1994 and 1995, Huckaby spent 75% of his time working at home in Tennessee and the remaining 25% working in his Queens office. He wanted to apportion his income 75% to Tennessee and 25% to New York. That way, he’d have to pay New York state taxes on only 25% of his income, while Tennessee had no state income tax. New
York, however, sought to tax 100% of his income—and won! Relying on the convenience of employer rule, New York taxed Mr. Huckaby on 100% of his income, even though he spent only 25% of his work time in New York.
New York enforces the convenience of the employer rule more than any other state. So, if you find yourself teleworking for a New York employer, whether from your home or from a satellite office outside of New York, be prepared to pay a double tax on whatever portion of your income you earn from home. New York does, however, make an exception for nonresident teleworkers who can prove that they’re working at home due to employer “necessity.”