Understanding New York’s Tax Rules: W-2 Wage Reporting and the Convenience of the Employer Rule
New York has strict tax rules that affect both employees and employers, particularly when it comes to wage reporting and taxation of remote work. Whether you are a business managing payroll or an employee working remotely for a New York-based company, understanding these rules is crucial to ensure compliance and avoid unnecessary tax liabilities.
W-2 Wage Reporting for New York Employees
Employers must carefully follow New York's wage reporting requirements when preparing W-2s for employees. If an individual is a full-year New York resident, the wages reported in the "State Wages, Tips, etc." box of the W-2 must match the federal wages reported in Box 1. For nonresidents who perform some work in New York, employers are still required to report the full amount of federal wages in the state wage box, regardless of whether the employee also works outside the state. The employee will later allocate their income based on the actual days worked in New York when filing their tax return.
On the other hand, if a nonresident performs no work in New York for the entire year, the employer is not required to report any New York wages on the W-2. Part-year residents must have their full federal wages reported in the state wage box, and it is their responsibility to allocate income between their resident and nonresident periods when filing. These reporting rules ensure that New York properly collects taxes on income earned within the state while allowing employees to adjust their tax obligations based on their work locations.
The Convenience of the Employer Rule
For nonresident employees working remotely for a New York employer, the Convenience of the Employer rule determines whether their income is subject to New York taxes. Under this rule, if an employee works from home or another location outside of New York for their own convenience, New York still considers those workdays as New York workdays, making the income taxable by the state. However, if the employer requires the employee to work remotely due to business necessity—such as working at a company-established remote office—those days may be considered out-of-state workdays and not subject to New York tax.
This rule has been very controversial since it has significant tax implications, particularly for remote workers in states that also tax earned income. In many cases, employees may face double taxation, with both New York and their home state claiming tax on the same income. While most states allow tax credits to mitigate this issue, they do not always completely offset the additional tax burden.
Recent Court Challenge: Myers v. New York State Division of Taxation (2024)
A recent court decision has reaffirmed yet again New York’s strict application of the convenience of the employer rule, even in cases involving pandemic-related remote work. In Myers v. New York State Division of Taxation, Richard S. Myers, a Pennsylvania resident employed by the Bank of Montreal (BMO) in New York, challenged New York’s taxation of his income while working remotely in 2020.
Myers worked at BMO’s New York City office until March 16, 2020, when BMO temporarily closed the office due to the COVID-19 pandemic. He then worked from Pennsylvania for the remainder of the year. Despite the office closure, New York’s tax authorities determined that all of Myers' income for 2020 was taxable as New York-source income under the convenience rule.
Myers argued that his remote work was a necessity, not a convenience, since BMO required him to work outside New York due to the office closure. However, the court ruled that BMO, as a financial institution, was exempt from New York’s COVID-19 closure mandates and could have remained open. Because BMO voluntarily closed its office rather than being forced to, the closure did not qualify as a business necessity, and Myers' remote work still fell under the convenience rule. As a result, the court upheld the New York tax department’s decision, requiring him to pay taxes on his full New York wages.
This ruling reinforces how rigidly New York applies the convenience rule, even in extraordinary circumstances like the pandemic. It serves as a warning to nonresident employees working for New York companies that remote work arrangements—even when required by an employer—may still be taxed as if they were physically performed in New York.
Navigating New York’s Complex Tax Rules
New York’s wage reporting and tax rules can be particularly challenging for remote employees and businesses with out-of-state workers. Employers must ensure proper W-2 reporting to avoid compliance issues, while employees should carefully track their work locations to accurately allocate income and avoid overpaying taxes. If you need assistance understanding these rules or managing your tax obligations, our firm is here to help. Contact us today for expert guidance tailored to your situation.
