8921 / What is the convenience rule and how does it impact the tax treatment of remote employees?

In other words, under the convenience rule, a nonresident taxpayer’s income is sourced to the employee’s physical location if the employee is working remotely because of necessity. On the other hand, the income is sourced to the employer’s location if the employee is working remotely for his or her own convenience.

Planning Point: Many experts have questioned whether days working from home due to the COVID-19 pandemic should be treated as “necessity” days or convenience days. The issue has yet to be fully resolved. Now that vaccines have become widely available, employers should pay close attention to this developing issue.

New York, Delaware, Nebraska, Arkansas, and Pennsylvania apply the convenience rule. Many other states opt to apply the convenience rule if the non-resident taxpayer’s state of residence applies a similar rule.¹

In New York, for example, days worked from an out-of-state residence during the pandemic were treated as though they had been worked in New York unless the employer had established an out-of-state office where the remote work was being performed.²

1. See, e.g., the Connecticut Research Report on the Convenience of the Employer https://www.cga.ct.gov/2021/rpt/pdf/2021-R-0008.pdf (last accessed September 30, 2024).