What Is the Convenience of the Employer Rule?

Remote work has become more popular in recent years and is among the many trends that have accelerated due to the COVID-19 pandemic. While remote work is not new, the rise in the number of people working remotely has created tax challenges for some employees and states.

As a result, some states have adopted the convenience of the employer rule or similar policies, which could result in double taxation for some employees. While there are some exceptions, employees working for employers in states that enforce this rule could owe additional taxes. We’ll cover everything you need to know about the convenience of the employer rule and how it may impact remote workers.

A financial advisor could help you create a financial plan for your tax planning needs and goals.

What Is the Convenience of the Employer Rule?

Normally, employees working for a company based in another state would only be subject to income taxes where they live. However, under the convenience of the employer rule, employees residing in a different state from their employer’s location may have to pay taxes in both states.

Despite the name, this rule is enforced by certain states, not employers. For example, suppose someone works for a company in New York but performs all of their work remotely from their home in New Jersey. Under the convenience of the employer rule, New York may still require them to pay state income tax because the company is based there. That’s in addition to the tax they already pay in New Jersey.

In other words, employees may face double taxation. While employees living in states with no income tax may be able to escape double taxation, others could see taxes withheld by two states.

There are some exceptions to the rule, though. The most significant is when an employer requires an employee to work in another state. If the job requires them to work in another state for any reason, the rule does not apply. But, if an employee works remotely by choice rather than necessity, they may be subject to the rule.

This can create financial challenges for remote workers. For example, worker supporting a family of four in a state different from their employer’s location may still be subject to double taxation. Even if moving isn’t practical, they may not qualify for an exception.

What Is the Purpose of the Rule?

As the rule’s name suggests, its purpose is to simplify tax collection for states rather than to benefit employees. It attempts to standardize tax treatment for remote workers while preventing tax evasion by those working remotely.

The Convenience of the Employer Test

In some cases, employees can avoid double taxation by passing the convenience of the employer (COE) test. This test determines whether an employee’s home office qualifies as a legitimate employer office.

To pass, employees must meet one primary factor or a combination of secondary factors:

• These factors include whether a home office is a required condition of employment and whether a specific area of the home is exclusively used for work.
• The primary factor is whether the employer requires the employee to work from a specialized facility near their location to perform their job.
• Alternatively, employees can qualify by meeting four out of six secondary factors and three out of ten other conditions.

Which States Have the Convenience of the Employer Rule?

As of January 2025, only eight states are using the convenience of the employee rule:

• Alabama
• Connecticut
• Delaware
• Nebraska
• New jersey
• New York
• Oregon
• Pennsylvania

Alabama, Delaware, Nebraska, New York and Pennsylvania have full convenience rules in their tax codes. For Connecticut and New Jersey, however, convenience rules are limited to nonresidents who live in states with their own set of convenience rules. And for Oregon, convenience rules only apply to nonresident managerial workers employed in Oregon.

Other states like Massachusetts temporarily applied convenience rules for remote workers during the COVID-19 pandemic.

Challenges to the Rule

These rules have already seen several challenges in court – a trend that may continue as the U.S. grapples with how to handle remote workers. Taxpayers have brought several cases to court in New York, citing clauses such as the Commerce Clause and the Due Process Clause. Unfortunately, legal challenges in New York have not gone the way of the taxpayer, with the rule largely being upheld.

In another case, one state challenged another: New Hampshire brought Massachusetts to court over its adoption of the rule for COVID-19 era telecommuters. Unfortunately for those telecommuters, the case was brought all the way to the Supreme Court, but the challenge was denied.

Bottom Line

The convenience of the employer rule allows some states to impose income tax on employees working remotely in other states for companies located within their borders. Unless employees live and work in a state with no income tax, they may be taxed twice. The main exception is where the remote work location is necessary to perform their job duties. While several legal challenges have been brought against the rule, most have failed so far.

Tips for State Income Tax

• A financial advisor could help you mitigate your tax liability. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Income tax can significantly reduce your take-home pay, especially if you work in a state that has adopted the convenience of the employer rule. If you recently started working for a company based in New York, use SmartAsset’s New York income tax calculator to estimate how much state income tax you will owe there.
• One way to potentially lessen the burden of the COE rule is to live in one of the nine states with no income tax. While the COE rule may still subject you to income tax where your employer is based, at least you can avoid state income tax at home.

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