As the pandemic has led to a significant increase in remote work, employees of New York-based companies residing in Connecticut and New Jersey are questioning why they still have to pay personal income tax to New York. In response to this issue, New Jersey has introduced a state tax credit for residents who work from home and successfully appeal their New York tax assessment, with Connecticut considering a similar measure. While the process may seem intimidating to some, individuals like Open Weaver Banks, a tax attorney, have decided to challenge these tax requirements, believing that out-of-state commuters should not have to pay New York income taxes if they are working remotely.
New York’s current policy requires out-of-state commuters who work for New York-based companies to pay income taxes to the state, even if they are working remotely most of the time. The strict requirements for what constitutes a bona fide home office have caused frustration for many individuals, with New Jersey and Connecticut struggling to recoup the lost tax revenue. Both states have implemented retaliatory tax rules that affect New Yorkers who work remotely for companies based in Connecticut or New Jersey, but the overall tax payments from these workforces do not make up the difference. Out-of-state taxpayers paid New York nearly $8.8 billion in taxes in 2021, with a significant portion coming from New Jersey and Connecticut residents.
New Jersey’s Division of Taxation is aiming to have New York’s rule overturned entirely, potentially requiring a legal challenge before the U.S. Supreme Court. Connecticut Governor Ned Lamont has also proposed a similar initiative to challenge New York’s tax requirements, citing the unfair financial burden on residents. Tax law expert Edward Zelinsky has been trying to challenge New York’s tax rule for about 20 years, emphasizing that the individuals most affected by these laws are often those of modest or middle income who cannot afford legal representation. A few states have tax rules similar to New York’s, but some have reciprocal income tax agreements with neighboring states.
Former New Jersey state Senator Steven Oroho has expressed skepticism about New Jersey’s commitment to challenging New York’s tax requirements, noting that New York is often aggressive in enforcing these rules. However, there is hope among experts that the right litigant will eventually challenge these tax policies in court. With potential annual revenue gains in the billions for New Jersey and Connecticut if residents working from home for New York companies are taxed in their home states, the issue remains a point of contention between the neighboring states and New York. The debate over remote work taxation highlights the complexities and challenges faced by individuals and states in the new era of telecommuting.
