The New Jersey Division of Taxation recently expanded its interpretation of the convenience of the employer rule, providing clarity on which nonresidents will be subject to the rule (State Tax Update, 08/08/2023). This development is significant for employees who work in New Jersey but reside in states that have similar laws.
Who Does the Rule Apply To?
The new law applies to residents of Arkansas, Delaware, Nebraska, and New York who work in New Jersey. These states impose a similar test, thereby subjecting their residents to New Jersey’s convenience rule.
Pennsylvania residents working in New Jersey are exempted, thanks to a Reciprocal Agreement between the states. Connecticut residents are also exempt as New Jersey believes Connecticut’s similar convenience rule does not apply to its residents working in Connecticut.
The Division plans to collaborate with the Connecticut Department of Revenue Services to further clarify the situation, and additional guidance is anticipated soon (Convenience of the Employer Sourcing Rule Enacted for Gross Income Tax, 08/10/2023).
New Jersey’s convenience of the employer rule adds complexity to state tax compliance for some nonresidents. It will be important for affected employees and employers to stay abreast of further guidance to ensure compliance. As always, consulting with a tax professional familiar with the specific regulations is advised.