Businesses headquartered abroad and seeking to establish beachheads in the United States must decide early on where their U.S. operations should be centered. (The separate, but equally important, determination to be made at about the same time is where how and where the U.S. business should be legally formed – a topic covered elsewhere in this newsletter.) In many cases, New York is chosen because of the extensive and sophisticated financial and commercial ecosystem that is the hallmark of New York City.
In such a “greenfield” or other early-stage context, concerns over start-up costs often lead investors to seek limited and flexible options for bringing on local employees. At the same time, competition for talent in the region is fierce, with potential hires having substantial bargaining power over the various terms of their engagement. These factors conspire to create an environment in which new employers may have to accommodate demands for remote or hybrid (collectively, “offsite”) working arrangements.
In addition to operational and human resources issues, offsite working arrangements can complicate the local tax positions of employers and employees alike. One of the most important—and frequently misunderstood—rules is New York’s “convenience of the employer” doctrine, which can cause an out-of-state employee’s compensation to be treated as New York-source income even for days the employee physically works outside New York, if those days are worked remotely for the employee’s own convenience rather than because of a condition or requirement of employment imposed by the employer.
The issue is of obvious relevance to the affected offsite employee. In addition, for New York employers, the issue affects wage withholding, payroll administration, employee communications, remote-work policies, and disputes over whether days outside New York were worked by necessity or by employee preference. There can be “knock-on” effects as well, notably in the context of corporate and regulatory consequences.
New York taxes nonresidents on income derived from New York sources, including – for employees – compensation attributable to services performed in New York. The state’s tax law, however, adds a special rule for nonresident employees whose assigned or primary office is in New York: days worked outside New York are not automatically exempt from taxation as New York-source compensation. (New York City has its own income tax, which strongly resembles the state version.)
Specifically, a nonresident employee’s workdays outside New York count as days of service performed outside the state only if that work was performed there out of necessity, as distinguished from convenience. For example, if an employee primarily assigned to a New York office works from a home office in New Jersey, Connecticut, Florida, or some other state simply out of personal desire, New York may still treat those days as New York workdays for income tax allocation purposes.
Offsite work may escape this “clawback” rule where the employer requires the employee to work at an out-of-state location to perform the job, serve clients, access facilities, comply with business needs, or carry out duties that cannot be performed at the New York office (the “convenience of the employer”). By contrast, an employee’s mere desire to avoid commuting, live in another state, or maintain a personal home office usually will not, by itself, exempt compensation attributable to those offsite days into New York-exempt income.
New York’s courts have upheld the convenience rule against significant constitutional challenges. In Zelinsky v. Tax Appeals Tribunal, a Connecticut resident and law professor assigned to a New York employer sought to allocate part of his salary outside New York for days worked from home. The New York Court of Appeals upheld New York’s application of the convenience rule, rejecting Commerce Clause and Due Process Clause challenges.
The same court reached a similar result in Huckaby v. New York State Division of Tax Appeals, involving a Tennessee resident employed by a New York employer. The court upheld the application of New York’s rule to income earned while working outside New York where the out-of-state work was not required by the employer in the relevant sense.
The petitioner in the Zelinsky case took another run at the “convenience of the employer” rule in 2025, arguing that the previous decision’s rationale should be revisited in light of the intervening Covid-19 pandemic, when access to the petitioner’s New York premises restricted or prohibited. An intermediate appellate panel recently rejected this attempt as well.
If the employee is assigned to a New York office and works remotely from another state for personal reasons, New York may treat those remote days as New York workdays. That can mean New York income tax on wages earned during those days, even though the employee was physically outside New York.
Since a reclassification of the employee’s tax return position by the New York tax authorities will usually occur at the audit stage, some years after the working days in question, the new or additional New York tax liability resulting from the redetermination will usually be accompanied by interest and, in some cases, penalty assessments.
The employee’s home state will probably also have taxed, or seek to tax, the same compensation. Credits for taxes paid to other states may be available where the employee likes, but even so those credits may not always eliminate the burden of double taxation.
Employees should also understand that informal remote-work arrangements can create documentation problems. If an employee later claims that out-of-state workdays were required by the employer, the employee should be able to point to contemporaneous evidence: employment terms, written work-location requirements, travel schedules, client assignments, facility needs, project requirements, or other records showing employer necessity.
Employers with New York offices should review how their payroll systems and remote-work policies classify nonresident employee workdays. The convenience rule can affect whether wages are treated as New York-source wages and whether New York withholding applies.
Employers should coordinate tax, payroll, HR, and legal functions before approving broad remote-work arrangements for employees assigned to New York. Remote-work approvals can have consequences beyond personal income tax, including state registration, unemployment insurance, workers’ compensation, paid leave, local employment law compliance, and corporate nexus questions in the employee’s state of residence.
New York’s convenience of the employer rule remains a significant issue for New York employers with nonresident employees. For many offsite employees, the tax consequences turn less on where the employee is located and more on whether the out-of-state work location is required by the employer’s business needs. Employers should document remote-work arrangements carefully, align payroll practices with New York rules, and communicate clearly with employees before tax filing season.
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