22 May Does coronavirus change how my out-of-state job is taxed?

Q. I live in N.J. and I work for a company based in New York City. My office closed because of the coronavirus and now I work at home. How does this impact the reporting of my 2020 taxes for N.J. and N.Y.? Is the income earned while working remotely from my home considered as earned only in New Jersey and is it taxed as such, or is my total pay considered New York income?
— Employed

A. Yours is a great question and the implications could affect so many people during the shutdown.

Under Section 132.18(a) of the New York tax code, any employee who works in New York but lives out-of-state must pay New York State income tax on their New York earned income, said Matthew Rheingold, an attorney with Einhorn, Barbarito, Frost & Botwinick in Denville.

Under this law, New York also allocates any day that an employee works at home for their own convenience — instead of the necessity of the employer — to the State of New York. This is known as “the convenience of the employer test,” Rheingold said.

“As such, an individual working from their home in New Jersey typically would have to pay New York income tax on their earned income,” he said.

Historically, New York has been extremely aggressive in pursuing any taxpayer who has not paid their applicable share of nonresident taxes and very few employees have been successful in challenging New York’s convenience of the employer test, he said.

But, Rheingold said, New York law also permits a taxpayer to exclude any such income from New York State income tax if the employee works from his or her out of necessity.

“Therefore, due to the COVID-19 pandemic, many employees, including yourself, may now have a claim that they are required to work from home out of a necessity and allocate any income that they have earned while required to work from home due to state shutdowns to their home state,” he said.

But importantly, taxpayers must be aware that absent a state order or legislation, any such argument may result in a challenge or audit by New York State, and that would require the taxpayer to challenge the validity of the law and their nonresident state allocation, Rheingold said.

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This story was originally published on May 22, 2020.

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