Your Remote Employee in New Jersey Still Owes New York Tax. A Court Just Confirmed It.

If you’re a New York employer and you let an employee work from home in New Jersey — or Connecticut, or Pennsylvania — there’s a good chance their wages are still taxable as New York income. All of them. Not just the days they drove in. All of it.

That’s New York’s “convenience of the employer” rule. On July 2, 2026, a New York appellate court just confirmed it isn’t going anywhere.

What the Rule Actually Says

New York taxes nonresidents working for New York employers based on where the work is performed — with one narrow exception. If a nonresident works from home or another out-of-state location, those out-of-state days only escape New York if the remote work was required by the employer’s business necessity. Not the employee’s preference. Not a general remote-work policy. Not even a government stay-at-home mandate.

If your employee works from home because it’s convenient for them — or because you gave them the flexibility — New York treats every one of those days as a New York workday.

The practical result: a sales manager who lives in New Jersey but works for your Long Island company, even if she works from home four days a week, could owe New York income tax on 100% of her wages.

What the Court Just Ruled

The July 2 case involved a Connecticut law professor who worked three days a week on a New York City campus and the rest from his home in Connecticut. During COVID, after the governor issued a remote-work mandate, he continued working from home. He filed for a refund, arguing that those pandemic-era days shouldn’t count as New York days.

The appellate court said no.

A government mandate, the court held, is not employer necessity. New York requires the remote arrangement to be dictated by a legitimate, employer-side business reason — not a statewide emergency, not an employee’s housing preference, not general pandemic policy. He owed New York tax on all of his income.

This wasn’t a surprise ruling. New York courts have consistently applied this rule. But it’s the first time a higher court addressed pandemic-era remote work head-on, and it closes the door on what a lot of employers and employees hoped might be an exception.

Why This Matters for Your Business

You have a withholding obligation. If you’re under-withholding for a nonresident employee who works remotely, you can face penalties for failure to withhold. And your employee can face a surprise tax bill — plus back taxes and interest — if New York audits them.

Here’s what that looks like. Say your employee earns $120,000 and works from home in New Jersey 80% of the time. Under the convenience rule, all $120,000 is potentially subject to New York income tax — not just the 20% she worked on-site. New York state tax on $120,000 runs roughly $7,000 to $8,500 depending on filing status. She’ll also owe New Jersey tax on the same income and get a credit for taxes paid to New York — but only if she actually pays New York first.

The bookkeeping and payroll filing obligation follows. If you’re not already registered for New York payroll, that’s a separate issue.

Which States Have a Similar Rule

New York is the strictest, but five other states follow some version of the convenience rule: Connecticut, Delaware, Nebraska, Pennsylvania, and Arkansas. If your business operates in any of those states and you have remote employees working from somewhere else, the same analysis applies.

Connecticut applies its rule specifically to New York employers — meaning a Connecticut resident working remotely for a New York company can owe New York tax on those remote days, and Connecticut gives a credit. Navigating the credit correctly is its own issue and requires careful coordination between the two withholding accounts.

What “Employer Necessity” Actually Means

To qualify for the exception — the one that would make those remote days non-taxable by New York — the remote work generally needs to be driven by a legitimate operational requirement specific to the employer. Courts and state auditors look for things like:

• A specialized role requiring the employee to be physically present in another location
• A client or facility in another state the employee must service directly
• A formal employer requirement, documented in writing, that the employee perform work from an out-of-state location for business reasons

“We have a flexible remote policy” doesn’t meet the bar. Neither does “they prefer to work from home.” And as the July 2 ruling confirmed, neither does a government-issued pandemic mandate.

What to Do Right Now

Start with a review of your current remote employees. For each one who lives outside New York:

1. Where are they actually working, and how many days are they in a New York office versus at home?
2. Are you withholding New York taxes on their full wages?
3. Do you have documentation that supports an employer-necessity exception if you’re claiming one?

If you haven’t been withholding correctly, fixing it proactively is far cheaper than having it surface in an audit. The New York Department of Taxation and Finance is aggressive about residency and withholding audits — they match data across state lines.

If your employees work in multiple states, you’ll also want to confirm whether you have a filing obligation in each of those states. Hiring a remote worker from home in New Jersey typically creates a New Jersey payroll obligation too. I wrote about that here.

This post is for general informational purposes only and does not constitute legal or tax advice. Rules vary by state and individual circumstance. Contact a qualified tax professional — or reach Geiger Tax & Accounting at (631) 532-5622 — before making decisions about withholding or payroll setup.