Last updated: September 2026

The Convenience of the Employer Rule

What the rule actually does

The convenience rule departs from sourcing wages to the place where the work is physically performed. A convenience of the employer rule breaks that default. Under it, a day a nonresident employee spends working from home counts as a day worked in the employer’s state unless the employee worked from home because the employer required it, rather than because the employee preferred it.

The distinction is necessity versus convenience. If the job cannot be done at the employer’s location and the employee therefore works elsewhere, the day is sourced where the work happened. If the employee could have come to the office and chose not to, the day is sourced to the office state.

For payroll, that means physical presence is not the withholding input in these states. Counting badge swipes or calendar days produces the wrong number.

What counts as the employer’s location

Every convenience rule turns on the employer’s state, and that phrase carries more weight than it looks. It is not a fact about the company. It is a fact about each individual employee.

Three things it is not. It is not the headquarters address. It is not where payroll is processed or where the payroll provider sits. It is not where the employee’s supervisor happens to live.

What it is: the employee’s assigned or primary work location. New Jersey’s Division of Taxation describes it as the office out of which the employee is supervised. New York’s guidance uses the parallel concept, an assigned or primary work location that is an established office of the employer inside the state. The determination is made employee by employee, which means one company can have some employees inside a convenience rule and some outside it.

Multiple offices

Where an employer has offices in several states, each employee’s primary or assigned office controls. A company with offices in a convenience rule state and a non convenience rule state has two answers, not one.

Offices that have closed

Closing an office does not resolve prior years, and it may not resolve the current one. In the Zelinsky litigation, New York taxed remote work days in 2019 and 2020, including 2020 days when a state executive order barred the employee from the New York office. The Tax Appeals Tribunal determined that the employer did not require the employee to work in Connecticut, only off campus, and the court held that determination rational and supported by substantial evidence.

Employees with no assigned office

An employee hired to work remotely who has never been assigned to an office is the clearest case for the rule not applying, because there is no established office in the state serving as their work location. It is also the position that rests on documentation, because the assignment itself is what has to be established. It is defended with the offer letter, the job posting, the org chart, and the HRIS work location field, not with an argument made after the fact.

The work location field is where this breaks. A work location in an HRIS can be set at hire and never revisited, overwritten with the employee’s home address when remote work started, or left naming an office the company has since closed. That field is an input to a sourcing decision. Before evaluating any convenience rule, confirm what it actually says for each nonresident employee and whether it matches the employment record.

Which states apply it

The disagreement is not really about which states have a rule. It is about what counts as having one, because some states apply the rule to any nonresident, some only against residents of other convenience rule states, and some only to a narrow category of worker.

Applying one criterion, that the state sources a nonresident’s out-of-state work days to the employer’s state when the work was done for the employee’s convenience, six of the states examined here qualify: New York, Nebraska, Delaware, Connecticut, New Jersey and Pennsylvania. The states examined are those that appear on published lists, not all fifty. They divide into three groups.

Applied to any nonresident: New York, Nebraska, Delaware

New York’s rule sits at 20 NYCRR 132.18(a), quoted in TSB-M-06(5)I. The Court of Appeals upheld it against constitutional challenge in 2003 and again in 2005, and the Appellate Division, Third Department, rejected a further challenge on July 2, 2026 in Matter of Zelinsky v Commissioner of Taxation and Finance. Further appeal is possible.

Nebraska codified its rule and paired it with a threshold. For tax years beginning on or after January 1, 2025, the special rule applies to a nonresident employee who is paid convenience rule wages and works seven employment duty days or less while present in Nebraska during a calendar year. Once that employee exceeds seven employment duty days, all days worked in Nebraska are subject to Nebraska income tax withholding. Nebraska uses Form 9N to set the withholding percentage.

Delaware applies a long standing administrative position.

Applied only against residents of other convenience rule states: Connecticut and New Jersey

Connecticut’s rule engages only when the nonresident employee’s state of domicile uses a similar test, and it applies for taxable years beginning on or after January 1, 2019.

New Jersey enacted its version in 2023, effective for tax years beginning on or after January 1, 2023. The Division of Taxation is direct about the mechanism: New Jersey does not have a convenience rule of its own. It applies the rule of the employee’s home state. A telecommuting New York resident working for a New Jersey employer is measured against New York’s test, not a New Jersey one. New Jersey identifies Delaware, Nebraska, and New York as the states that trigger it, and excludes Pennsylvania residents because of the reciprocal agreement between the two states. The rule also reaches work done from a third state, so a New York resident working from a vacation home elsewhere is still sourced to New Jersey.

Applied to any nonresident under a stated doctrine: Pennsylvania

Pennsylvania follows the convenience of the employer doctrine, in the words of the Department of Revenue’s Personal Income Tax Guide. Compensation for services performed by nonresidents cannot be allocated to the actual place of performance if the services were performed there only for the employee’s convenience, or were not performed there of necessity in the service of the employer. The guide names two factors and no others: whether the services performed outside the taxing jurisdiction were performed in the service, and for the benefit, of the employer, and whether they could have been performed at an office of the employer within the taxing jurisdiction, including where the employer could have made suitable accommodations available. The Department’s telework guidance covers the necessity side, stating that a nonresident required to telework full time from home in another state should treat that compensation as non-Pennsylvania source income even when the employer is in Pennsylvania, and that the employer is not required to withhold in that situation. Philadelphia runs its own version for the city Wage Tax. Under the Department of Revenue’s Requirement of Employment policy, the compensation of a nonresident employee of a Philadelphia based employer is not subject to Wage Tax while the employee is required to work outside Philadelphia, and is subject to Wage Tax for days worked from home when the employer allows working from home at the convenience and discretion of the employee. A refund is claimed after the tax year by petition, with the W-2 and a signed letter on company letterhead certifying that the employee was required to work from home.

Sourcing by physical presence: Alabama, Arkansas and Oregon

Alabama sources a nonresident’s wages by where the services are physically performed. The Department of Revenue’s notice posted August 25, 2026 states that an employer should withhold Alabama income tax from a nonresident’s wages only to the extent the wages are attributable to services physically performed in Alabama, and that withholding is not required solely because the employer is located in Alabama when the employee performs no services in the state. The regulation on gross income of nonresidents applies the test of physical presence, except where the peculiar nature of the services causes the objective of the employment to be accomplished or to take effect within the state. A 30 day safe harbor exempts certain out-of-state workers performing services in Alabama for 30 or fewer days in a calendar year. The notice states that the Department will not follow the Alabama Tax Tribunal ruling in Bollinger v. State of Alabama Department of Revenue, Dkt. No. 22-390-LP, March 8, 2023, to the extent that ruling is inconsistent with the notice. Oregon sources a nonresident’s wages by physical presence. OAR 150-316-0165(1)(a) includes compensation for personal services in a nonresident’s gross income only to the extent that the services were performed in this state, and (1)(b) excludes compensation for personal services performed wholly outside this state and in no way connected with the management or conduct of a business in this state, even where payment is made from a point within the state or the employer is a resident. Under (3)(a), income is allocable to Oregon to the extent the employee is physically present in Oregon at the time the service is performed, determined by the actual physical location of the employee and not by the location of the employer. One exception taxes without apportionment. Under (3)(b), where compensation paid by a corporation operating in Oregon is exclusively for managerial services performed by corporate officers and executives who spend only a portion of their time within the state, the entire amount is taxable. OAR 150-316-0255 requires withholding on all wages paid to nonresidents for services performed in Oregon, and where a nonresident earns wages both in and outside Oregon only the part earned in Oregon is subject to withholding. Arkansas sources a nonresident’s wages by physical presence. Act 1019 of 2021 provides that nonresidents who earn income from Arkansas sources will only pay tax on the income the nonresident earns while physically present in Arkansas when performing the work, and it amends the definition of employer under the Arkansas Income Tax Withholding Act of 1965 to include a person doing business in or deriving income from sources outside the state who has control of the payment of wages for services performed within the state.

Massachusetts: a temporary pandemic rule with a stated end condition

Massachusetts adopted a temporary pandemic sourcing rule at 830 CMR 62.5A.3, which treats compensation as Massachusetts source income where a nonresident who was performing services in Massachusetts immediately before the state of emergency performs them from outside the state due to a pandemic related circumstance. By its own terms that rule applies to services performed from March 10, 2020 through 90 days after the Governor gives notice that the Massachusetts COVID-19 state of emergency is no longer in effect. The regulation states that end condition and carries no notice that it has been met.

New York, Nebraska, Connecticut, New Jersey, Pennsylvania, Alabama and Oregon each state their position in statute, regulation, or their own department of revenue guidance. Delaware is identified by the New Jersey Division of Taxation, which must name triggering states in order to administer its own rule, and Delaware’s own Division of Revenue states the position directly. Confirm any state’s current position with that state’s department of revenue before configuring withholding.

New York published a factor test

TSB-M-06(5)I, issued May 15, 2006, enumerates a primary factor, six secondary factors and ten other factors, and sets out when a home office qualifies as a bona fide employer office. If it qualifies, normal work days spent there are treated as days worked outside New York. The memo applies to tax years beginning on or after January 1, 2006 and governs the Yonkers nonresident earnings tax on the same terms. For part year residents it applies only to the nonresident portion of the year.

One threshold question comes before all of it. The test engages only when the employee’s assigned or primary work location is an established office of the employer in New York State. If the employee’s primary work location is a bona fide employer office outside New York, home days are already out of state days and the test never runs.

The primary factor

The home office contains or is near specialized facilities that cannot be made available at the employer’s place of business. The memo’s own example is a test track for evaluating vehicles. Equipment that could physically be installed at the employer’s New York location does not meet this factor, even if it currently sits at the employee’s home.

The six secondary factors

1. The home office is a requirement or condition of employment.
2. The employer has a bona fide business purpose for a location where the employee’s home is.
3. The employee performs some core duties of the job at the home office.
4. The employee meets clients, patients, or customers there on a regular and continuous basis.
5. The employer provides no designated office space or other regular work accommodation at one of its regular places of business.
6. The employer reimburses substantially all home office expenses, defined in the memo as 80 percent or more, or pays fair rental value for the space and furnishes or reimburses substantially all supplies and equipment.

The memo was written before routine video conferencing and does not address whether virtual client meetings satisfy factor four. It remains an open question.

The ten other factors

• Separate business telephone line and listing.
• Home office address and phone on the employer’s letterhead or business cards.
• A specific area used exclusively for the employer’s business and separate from the living area, which fails if the space is used for both business and personal purposes.
• Inventory or product samples kept there when the employer sells at wholesale or retail.
• Employer business records stored there.
• Signage indicating a place of business.
• Employer advertising showing the home office as a place of business.
• Business insurance policy or a business rider on the homeowner policy.
• The employee is entitled to and actually claims a federal home office deduction.
• The employee is not an officer of the company.

The threshold, and the one factor that no longer exists

A home office qualifies if it meets either the primary factor, or at least four of the six secondary factors and at least three of the other factors.

That is an either or, not a cumulative score. Meeting the primary factor alone is sufficient. Meeting three secondary factors and nine others is not.

The other factor list has a problem the 2006 memo could not anticipate. It asks whether the employee claims a federal home office deduction. Under IRC section 67(h), no miscellaneous itemized deduction is allowed for any taxable year beginning after December 31, 2017. The Tax Cuts and Jobs Act added that suspension as subsection (g) with an end date of January 1, 2026, and the One Big Beautiful Bill Act struck the end date and redesignated the subsection as (h), effective for taxable years beginning after December 31, 2025. An employee home office deduction is a miscellaneous itemized deduction, because section 67(b) lists the itemized deductions that are not, and the only section 162 deduction on that list is educator expenses. A W-2 employee cannot satisfy that factor at all.

The threshold is still three. The reachable pool is nine.

The accountable plan route is what remains. Amounts an employer pays to reimburse home office expenses under an accountable plan are not wages and are not subject to income, social security, Medicare or FUTA taxes, provided the employee substantiates the expenses within a reasonable period of time and returns any amount in excess of what was substantiated. The same reimbursement feeds secondary factor six.

Qualifying changes the allocation, not the liability

A qualifying home office does not exempt anyone from New York tax. It changes which days count.

Days actually worked in New York remain New York source income in every case. What qualification changes is the treatment of normal work days spent at the home office, which move from the New York column to the outside New York column. A day at the home office that is not a normal work day is a nonworking day and does not enter the calculation on either side. Responding to occasional calls or email, reading professional material, or being available if needed does not make a day a normal work day.

Where payroll actually gets this wrong

The employer does not make this determination. The employee does, on Form IT-2104.1, the New York State, City of New York, and City of Yonkers Certificate of Nonresidence and Allocation of Withholding Tax.

Part 1 asks the employee to certify nonresidence and to estimate the percentage of services performed within New York State. Part 3 does the same for Yonkers. Part 2, for New York City, carries no percentage, because a nonresident is not liable for New York City personal income tax, while a nonresident may still be subject to the Yonkers nonresident earning tax on income sourced to Yonkers. The city nonresident earnings tax was eliminated for New York State nonresidents on or after July 1, 1999, following a Court of Appeals decision, and employers have no further withholding obligation for it.

The form’s instructions say the percentage may be figured on days, miles, time, or similar criteria, and offer one example: an employee working in New York two days out of five performs 40 percent of services in New York.

The instructions never mention the convenience of the employer rule.

So consider an employee who lives outside New York, is assigned to the employer’s New York office, and works three days a week from a home office that does not qualify as a bona fide employer office. Following the instruction on the form, that employee counts two days in five and writes 40 percent. Under the convenience rule the correct figure is 100 percent, because non qualifying home office days are New York work days.

Two documents from the same department, neither referencing the other, and the one the employee actually fills out points at the wrong answer.

The consequences fall on both sides. The form states that a penalty of 500 dollars may be imposed for furnishing false information that decreases the withholding amount. The employer withholds on the percentage supplied, must keep the certificate, and must produce it for inspection by the Tax Department. The employer has the exposure and no independent way to verify the number.

The employee must also notify the employer within 10 days of any substantial change in the percentage of services performed within New York State or Yonkers, or of a change from nonresident to resident. Remote schedules change. This is a recurring obligation, not a hire date form.

Nebraska runs the same pattern with a different form. Form 9N asks the nonresident employee to designate the percentage of wages subject to Nebraska withholding, and the employer withholds on what the employee certifies. The instrument differs by state; the exposure structure does not.

Which factors an employer can actually change

Four of the six secondary factors are employer decisions: the home office as a requirement or condition of employment, the employer’s bona fide business purpose for the employee’s home office location, the employer not providing designated office space or other regular work accommodations at one of its regular places of business, and employer reimbursement of expenses for the home office. The other two turn on what the employee does: performing some of the core duties of employment at the home office, and meeting or dealing with clients, patients or customers there on a regular and continuous basis.

Employer controlled and inexpensive: written condition of employment language, a documented business purpose for the location, no designated office space at a regular place of business, employer records stored at the home office, a separate business phone line and listing.

Employer controlled and expensive: reimbursement at 80 percent or more, which carries real spend and, under an accountable plan, keeps the payment out of wages.

Outside anyone’s control: officer status, specialized facilities, and whether the employer sells at wholesale or retail.

Before treating a residence as a place of business through signage, advertising, or stored business records, consider what else that establishes. Holding out a home as a place of business can bear on state tax nexus, local business registration, zoning and homeowner association restrictions, and workers compensation coverage. Those questions belong with counsel before the change is made, not after.

What to do this week

Pull every nonresident employee whose assigned work location is in a convenience rule state. Confirm a current certificate is on file for each one. Compare the percentage on each certificate against how that employee actually works, using the convenience rule rather than physical presence. Where a certificate is stale, request a new one. Where a home office position is being asserted, document each factor now, while the evidence is contemporaneous, because a certificate challenged three years from now is defended with records that existed at the time.

This is not legal or financial advice. Consult a qualified professional for your specific situation.