Relief for New Jersey Remote Workers Paying New York Tax (sorta)

If you work remotely in New Jersey for a New York employer, you can avoid the hassles of commuting and possibly congestion pricing if it is ever enacted. But you are probably still paying personal income tax to New York.

Because of the Convenience of the Employer rule, remote employees of New York companies must pay New York income taxes. The amount of money raked in by New York from out-of-state taxpayers is not insignificant, amounting to about 15 percent of New York’s overall income revenue, according to AP, or about $8.8 billion. Though not parsed by remote work, total taxes paid to New York by Connecticut and New Jersey taxpayers in 2021 was $1.5 and $4.3 billion, respectively.

The long-standing Convenience Rule is a real inconvenience to remote workers and the states in which they live—which are missing out on tax revenue. New Jersey estimates it is missing out on as much as $1.2 billion for workers living and working in NJ that are being taxed in New York.

To try and shift the balance, New Jersey has established the “Refundable Gross Income Tax Credit” for income tax years 2020 through 2023 for residents who challenge a state on the imposition of tax via the Convenience Rule (e.g., New York). The rebate amounts to about half of the out-of-state tax paid by the taxpayer. While the credit sounds good, the requirements for a New Jersey resident to obtain the rebate are steep and include:

• Apply for and be denied a refund for taxes paid to external states while working remotely
• File an appeal in the other tax jurisdiction
• Win the appeal and obtain a refund from the external tax jurisdiction
• The taxpayer must submit a copy of the final judgment from the external tax jurisdiction with an amended tax return to New Jersey
• The refund could result in additional taxes due in New Jersey, but there is an allowed credit of 50 percent of the additional tax owed

According to the media, so far only one New Jersey resident has gone all the way through the process to earn a refund of $7,797.02.

Connecticut may consider similar action but the day when New York state changes its Convenience Rule in favor of the tax revenues of neighboring state will not be anytime soon.

Contact our legal group for strong representation on allegations of tax fraud and compliance issues in New York

Serving clients in New York, across the country, and abroad, the tax lawyers at Robert J. Fedor, Esq., LLC provide experienced guidance on criminal tax allegations, offshore tax issues, and tax controversy. Contact us or call 440-250-9709.