Date: October 18, 2023Attorney: Martin D. Hauptman

The New Jersey Division of Taxation has recently updated its guidance regarding the “convenience of the employer” rule, with specific implications for Connecticut residents. This rule has a significant impact on how income is taxed for remote workers, and the latest information sheds light on how it operates in the context of interstate work arrangements.

Connecticut’s Reciprocal Test

The updated guidance revolves around Connecticut’s provision codified in Conn. Gen. Stat. § 12-711, which governs Connecticut’s “convenience of the employer” law. New Jersey’s convenience of the employer rule comes into play for nonresident employees whose state of domicile utilizes a similar test. In other words, it hinges on reciprocity.

Key Takeaway

Here’s the key takeaway: If a nonresident employee lives in Connecticut and works from home there for a New Jersey employer, New Jersey’s convenience of the employer rule will not apply. This change reflects the reciprocal nature of Connecticut’s law.

Expectations and Recommendations

While New Jersey expects Connecticut to reciprocate in the application of its convenience of the employer rule for employees working in New Jersey for a Connecticut employer, it is advisable for taxpayers and practitioners to await formal guidance from Connecticut for complete clarity on the matter.

This update has implications for remote workers and employers in New Jersey and Connecticut, potentially altering the tax treatment of their income. Staying informed about such changes is essential for both individuals and businesses to ensure accurate compliance with tax laws.

The New Jersey Division of Taxation has updated its previous guidance on the convenience of the employer rule (see State Tax Update08/08/2023 and State Tax Update, 08/11/2023).

Convenience of the Employer Rule Enacted for Gross Income Tax (Updated), 09/26/2023.