By Kevin Jablonski, Senior Associate and Phil London, Partner Emeritus

The “convenience of employer rule” has been a controversial topic for many years, but more so with New York’s treatment during the pandemic. The “convenience of employer rule” treats employees of New York businesses who work from home outside the state, as New York income for income tax purposes. This rule caused a significant increase in New Jersey residents claiming New Jersey’s credit for taxes paid to other jurisdictions, even though they were unable to work in New York. In other words, New Jersey has been losing tax revenue to prevent its taxpayers from double taxation. Double taxation, which is only occurring due to what some would say is an overreach of New York’s taxing authority. Residents of New York’s neighboring states, as well as tax professionals, have been waiting to see how New Jersey may respond to New York’s method of increasing its tax revenue. With the signing of New Jersey Bill 4694, New Jersey has put forward its solution to this issue.

The new legislation will impose the state’s own “convenience of employer rule” to any taxpayer who resides in a state that has its own “convenience of employer rule.” For example, any resident of New York who works remotely in New York for a New Jersey based company will now have their days spent working remotely included in their days spent in New Jersey. Other provisions of the bill include a nonrefundable gross income tax credit of $2,000 to taxpayers who request relocation from their employer from an out-of-state location to a New Jersey location, a pilot program that would provide grants to businesses who provide a New Jersey work location to their New Jersey resident employees, and a refundable tax credit to those who receive a refund or taxes paid to another jurisdiction and as a result have a readjustment in their New Jersey credit for taxes paid to another state. The refundable tax credit for the adjustment to taxes paid to another jurisdiction must come from a final judgment from another state tax court or tribunal in the resident taxpayer’s favor. These provisions aim to reduce the amount of New Jersey residents who will be subject to the New York “convenience of employer rule” and put pressure on New York by subjecting New York residents to New Jersey’s “convenience of employer rule.”