Managing payroll for remote employees across state lines can get complicated fast. Take the “convenience of the employer” rule, it’s an election that can complicate your payroll but might make the most sense for your business. In a nutshell, if a remote employee works from home for your convenience rather than theirs, you can choose to treat their work location as your office for payroll purposes. Pass the COE test, and you can skip registering for unemployment taxes in the employee’s home state.
But it’s not quite as easy as all of that, of course—the COE actually cuts both ways. States like New York use the same logic to tax nonresident employees, even those who never work there physically. That can mean double taxation for your employees and withholding headaches for you.
Today, Mosey is clearing up the confusion for employers by covering which states enforce COE rules, how each state’s criteria differ, and what employers need to consider when managing remote teams across state lines. Let’s get started.
Key Takeaways
- The convenience of the employer rule can create double taxation for remote employees working for companies based in certain states.
- Eight states currently enforce some version of the rule: Alabama, Connecticut, Delaware, Nebraska, New Jersey, New York, Oregon, and Pennsylvania.
- Employers must understand each state’s specific requirements to withhold taxes correctly and avoid compliance issues.
A Patchwork of Regulations
Several states enforce full convenience rules, meaning nonresident employees may owe taxes regardless of where they physically work:
- Alabama
- Delaware
- Nebraska
- New York
- Pennsylvania
Other states apply modified versions. Connecticut and New Jersey use a reciprocal convenience rule, meaning they only apply the rule to residents of states that impose similar rules. Oregon applies a limited version that affects only nonresident managerial workers. These variations underscore the complexity of tax compliance for employers managing remote work arrangements across state lines.
What Is the Convenience of the Employer Rule?
The convenience of the employer rule determines how states tax income earned by nonresident employees. Under this rule, if you work remotely for an employer based in a state that enforces it, your wages may be taxed by that state, even if you never set foot there.
The rule hinges on a simple question: Is your remote work arrangement for your convenience, or is it a necessity for your employer? If your employer has office space available and you choose to work from home in another state, that’s typically considered your convenience. Your income gets sourced to your employer’s state.
If your employer requires you to work remotely—perhaps because they have no office space or your role demands it—your income may be sourced to where you actually perform the work. The burden of proving employer necessity typically falls on the employee, and the bar is high.
Convenience of the Employer Rule by State
Eight states currently enforce some version of the convenience rule. The table below provides a quick reference, followed by detailed breakdowns for each state.
| State | Rule Type | Tax Credit Available |
|---|---|---|
| New York | Full | Yes (resident credit) |
| Alabama | Full | Yes (resident credit) |
| Delaware | Full | Yes (resident credit) |
| Nebraska | Full (modified) | Yes (resident credit) |
| Pennsylvania | Full | Yes (resident credit) |
| Connecticut | Reciprocal only | Yes (resident credit) |
| New Jersey | Reciprocal only | Yes (resident credit + special litigation credit) |
| Oregon | Limited | Yes (resident credit) |
A Note on Working Day Thresholds
The convenience of the employer rule is distinct from general nonresident day-count thresholds. Day-count thresholds determine how many days you must physically work in a state before standard withholding requirements kick in. COE rules, by contrast, source your income back to your employer’s state even when you’re not physically present there.
Most COE states apply the rule from day one, so there’s no minimum number of days before it takes effect. The notable exception is Nebraska, which in 2024 amended its rule to require at least seven days of physical presence in the state before the convenience rule applies. If a nonresident employee never sets foot in Nebraska during the tax year, the COE rule won’t apply to their wages.
For New York, the question of whether any physical presence is required remains unsettled. Recent administrative decisions suggest the rule may apply even to employees who never physically work in New York, though this interpretation is being challenged.
New York State: The Most Complex Employer Test
New York enforces the strictest convenience rule in the country. The burden falls on the nonresident employee to prove their remote work qualifies as employer necessity rather than personal convenience.
To avoid New York income tax on remote workdays, employees must demonstrate their home office qualifies as a “bona fide employer office.” This requires meeting either:
Primary Factor (must meet this one criterion):
The home office contains or is near specialized facilities that cannot be made available at the employer’s New York location. For example, an employee who needs access to a test track or manufacturing facility near their home would meet this factor.
Or Alternative Test (must meet 4 of 6 secondary factors AND 3 of 10 other factors):
Secondary factors include:
- The home office is a condition of employment stated in a written agreement
- The employer has a bona fide business purpose for the home office location
- The employee performs core job duties at the home office
- The employee meets with clients or customers regularly at the home office
- The employer does not provide designated office space at its New York location
- The employer reimburses substantially all home office expenses (80% or more)
Other factors include:
- The employer maintains a separate telephone line for the home office
- The home office address appears on business cards or letterhead
- The employee uses a dedicated space exclusively for work
- The employer stores business records at the home office
- The home office has signage indicating a place of business
- The home office is covered by business insurance
- The employee claims a federal home office deduction
In practice, these criteria are difficult to meet. Most remote workers won’t qualify for the bona fide office exception, which means their wages remain subject to New York State income tax regardless of where they physically perform the work.
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Alabama, Delaware, Nebraska, and Pennsylvania: Full Convenience Rules
Alabama joined the list in 2023 through a Tax Tribunal decision rather than legislation. The ruling is notably aggressive, not requiring any physical presence in Alabama for the rule to apply. If you work remotely for an Alabama-based employer, the state may claim your wages as Alabama-source income even if you never set foot there.
Delaware applies a standard convenience test. If you work remotely for a Delaware employer by choice rather than necessity, your wages are sourced to Delaware. The state provides limited published guidance on specific criteria, so employers should consult Delaware’s withholding regulations or a tax advisor for compliance.
Nebraska historically applied a broad convenience rule, but 2024 legislation added a key limitation: the rule now only applies if the nonresident employee is physically present in Nebraska for more than seven days during the tax year. This provides meaningful relief for fully remote workers who never travel to Nebraska for work.
Pennsylvania enforces a full convenience rule similar to New York’s framework. However, Pennsylvania has a reciprocity agreement with New Jersey, which exempts residents of either state from withholding for services performed in the other. This doesn’t eliminate the COE issue for workers in other states.
Connecticut and New Jersey: Reciprocal Convenience Rules
Connecticut adopted a reciprocal convenience rule in 2019. It only applies to nonresident employees who live in states that impose their own convenience rules, primarily targeting workers who live in New York, Delaware, Nebraska, or Pennsylvania. If you’re a Connecticut resident working for an employer in one of those states, Connecticut will now allow you to claim a resident credit for taxes paid under that state’s convenience rule.
New Jersey enacted its reciprocal rule in 2023, retroactive to January 1, 2023. Like Connecticut, it only applies to residents of other COE states, specifically Delaware, Nebraska, and New York. Due to reciprocity agreements, it doesn’t apply to Pennsylvania or Connecticut residents.
New Jersey also created a unique tax credit for its residents: a refundable credit equal to 50% of additional taxes owed to New Jersey for residents who successfully challenge another state’s convenience rule in court and receive a refund. This credit applies to tax years 2020 through 2023.
Oregon: Limited to Managerial Workers
Oregon’s convenience rule is the narrowest of the group. It applies only to nonresident corporate officers and executives whose compensation is exclusively for managerial services performed for an Oregon employer. If you’re a nonresident manager whose duties involve overseeing Oregon operations, your entire compensation may be taxable in Oregon, even if you perform some work from home in another state.
For non-managerial employees, Oregon follows standard sourcing rules: you’re only taxed on wages for work physically performed in Oregon.
Legal Challenges to the Convenience Rule
New York’s Legal Standoff
New York State has faced repeated legal challenges to its convenience rule, with taxpayers arguing it violates both the Commerce Clause and the Due Process Clause. So far, New York has held its ground. In May 2025, the New York Tax Appeals Tribunal upheld the rule in the Zelinsky case, rejecting constitutional challenges from a law professor who worked remotely from Connecticut.
Earlier that year, an Administrative Law Judge ruled against a Pennsylvania resident in the Myers case, finding that even pandemic-era remote work didn’t qualify as employer necessity. These decisions signal that New York will continue enforcing the rule aggressively.
The Future of the COE Rule
The convenience rule remains a contentious issue as remote work becomes more common. Some states have pushed back against the rule, while others have adopted their own versions. The lack of federal guidance means employers and employees must navigate a complex web of state-specific rules.
Several bills have been introduced in Congress to address the issue, but none have gained significant traction. Until federal action occurs, the patchwork of state rules will continue to create challenges for multi-state employers and their remote workforces.
Other Considerations for Multi-State Taxation
Beyond the convenience rule itself, employers managing remote teams should keep these related factors in mind:
- Reciprocity agreements: Some states have agreements that allow employees to pay taxes only in their state of residence. These agreements simplify withholding but don’t override convenience rules in states that enforce them.
- No-income-tax states: Employees living in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming don’t face state income tax liability in their home state—but they may still owe taxes to a convenience rule state where their employer is based.
- Bona fide employer office exception: New York and some other states allow employees to avoid double taxation if their home office qualifies as a legitimate employer office. This requires meeting a primary factor (specialized facilities) or a combination of secondary and other factors (dedicated workspace, regular client meetings, employer-provided equipment, etc.).
- Filing and withholding thresholds: Some states don’t require withholding until an employee works a certain number of days in the state. These thresholds vary widely, so employers need to track employee work locations carefully.
- Tax nexus: Having remote employees in a state can create tax nexus for your business, potentially triggering registration requirements, income tax obligations, and other compliance needs beyond just payroll withholding.
For employers, understanding these tax implications is essential to avoiding penalties and supporting employees with their tax planning needs. Consulting with a tax professional familiar with multi-state taxation can help you navigate the specifics of each state’s requirements.
What the Convenience of the Employer Rule Means for Employers
For employers, the convenience rule creates significant compliance challenges. You may need to withhold taxes for states where your employees don’t physically work. Getting it wrong can result in penalties, back taxes, and unhappy employees.
Here’s what employers should consider:
- Track employee locations: Know where your employees actually work, not just where they live.
- Understand each state’s rules: The convenience rule varies by state. What applies in New York may not apply in Pennsylvania.
- Consult with tax professionals: Multi-state taxation is complex. Professional guidance can help you avoid costly mistakes.
- Communicate with employees: Employees may not understand why they’re being taxed by a state where they don’t work. Clear communication can help manage expectations.
Navigate Multi-State Compliance with Mosey
The convenience of the employer rule adds another layer of complexity to an already challenging compliance landscape. For employers with remote workers spread across multiple states, keeping track of varying tax rules, withholding requirements, and filing deadlines can quickly become overwhelming.
Mosey simplifies multi-state compliance by automating the tracking and management of your state tax obligations. From payroll tax registration to ongoing compliance monitoring, Mosey helps you stay on top of requirements across all 50 states—so you can focus on growing your business instead of worrying about which state wants a piece of your employees’ paychecks.
Ready to simplify your multi-state tax compliance? Schedule a demo with Mosey today and see what you’ve been missing.
Convenience of the Employer Rule FAQs
What is the convenience of employer rule in NY?
New York’s convenience rule requires nonresident employees of New York-based employers to pay New York State income tax on their wages, even if they work remotely from another state. The only exception is if the employee can prove their remote work is a necessity for the employer—not just a personal preference—or if their home office qualifies as a bona fide employer office under New York’s strict criteria.
What is the IRS convenience of the employer?
The IRS does not have a federal convenience of the employer rule—this is strictly a state-level tax issue. The term sometimes appears in federal contexts related to employer-provided benefits or housing, but for remote work taxation purposes, convenience rules are created and enforced by individual states, not the federal government.
What states have convenience of the employer?
Eight states currently enforce some form of the convenience rule: Alabama, Connecticut, Delaware, Nebraska, New Jersey, New York, Oregon, and Pennsylvania. Alabama, Delaware, Nebraska, New York, and Pennsylvania apply full convenience rules. Connecticut and New Jersey use reciprocal versions that only apply to residents of other convenience rule states. Oregon’s rule is limited to nonresident managerial employees.
How does the COE rule affect employer withholding obligations?
Employers based in convenience rule states may need to withhold state income tax from remote employees’ wages, even when those employees work entirely from another state. This creates administrative complexity—employers must track employee locations, understand each state’s specific rules, and potentially withhold for multiple states on a single employee’s nonresident return.
Can employees avoid double taxation under the convenience rule?
In most cases, employees can claim a credit on their resident state tax return for taxes paid to another state, which helps offset double taxation. However, the credit may not fully eliminate the extra tax burden, especially if the convenience rule state has higher tax rates. Some employees reduce their tax liability by living in states with no income tax or by qualifying for a bona fide employer office exception.
