Understanding New York's “Convenience of the Employer” Tax Rule
Why Remote Workers Outside NY May Still Be Taxed Like They Live There
As more companies embrace distributed teams across the US, navigating state tax laws has become increasingly complex especially in states like New York. One of the most confusing (and costly) rules founders and finance leaders encounter is the “Convenience of the Employer” doctrine.
Let’s break down what it means, why it matters, and how to plan around it.
What Is the “Convenience of the Employer” Rule?
The “Convenience of the Employer” rule is a New York State tax policy that applies to employees who are based out of a New York office but work remotely from another state.
In simple terms:
If an employee lives and works outside New York for their own convenience, New York may still tax their income as if they worked in New York.
In other words, the remote employee doesn’t escape New York taxes just because they’re physically outside the state.
Who Does This Affect?
- Companies with a New York office (even just a co-working space or small team)
- Employees who live in another state but are tied to the NY office
- Founders or executives hiring in states like CT, NJ, PA, MA, etc., who assume those employees will only pay local taxes
What Counts as “Convenience”?
The state looks at why the employee is working remotely.
If it’s for the employee’s own preference (e.g., lifestyle, family, avoiding a commute), New York will still claim the tax.
Only if remote work is a necessity of the job such as the company having no office space in New York, or the work must be performed in a different location (e.g., managing a facility, meeting clients, using equipment) can the employee be taxed solely by their home state.
Real-World Example
Imagine your startup is headquartered in Manhattan but you hire a developer in Philadelphia. They work from home full-time and never come to NYC.
Unless you can prove their work must be performed from Pennsylvania for a business reason, New York may require them to pay NY state income tax even though they never step foot in the state.
This could mean double taxation unless their home state offers a credit for taxes paid to New York (not all do).
Why This Matters for Founders and Employers
- Hidden Cost of Hiring Remotely
- You may think you’re hiring out-of-state talent to reduce tax or cost only to find they’re still subject to NY taxes
- Employee Frustration
- Your team may be hit with unexpected tax bills, or need to file in multiple states.
- Location Strategy Risks
- Choosing NY as your first US location or hub may trigger ongoing tax exposure even if most of your team is remote
How to Mitigate the Risk
✅ Avoid a NY Nexus If Possible
If you’re still early-stage or exploring US expansion, think carefully about where you create a physical footprint. Starting in a different state (e.g., Texas, Florida, or Colorado) could reduce future tax complications.
✅ Document Business Necessity
If you have out-of-state employees, keep clear documentation showing why they must work outside New York for the benefit of the company.
✅ Consider Entity Location Carefully
Even a single New York-based executive or office lease can create long term tax consequences under this rule.
✅ Work With US-Based Tax Advisors
Get state-specific tax guidance before you scale hiring or sign leases especially in NY, CA, and MA.
Final Thoughts
New York’s “Convenience of the Employer” rule is a legacy tax doctrine but it has very real consequences for modern, remote-first companies. As international and remote hiring becomes the norm, founders must understand the quirks of US state tax law to surprises.
Hiring remotely isn’t just about flexibility it’s also about strategy. And in New York, convenience can cost you.
Reach out to the In2America team if you need more information about this or want to explore options. We can help you think through the right approach and plan a strategy to ensure your success. We can also introduce you to the right tax partners to short cut your decision making.