United States: COVID-19 Response: New York Employers, Teleworkers May Obtain COVID-19 Relief From State Income Tax And Withholding Requirements – A Harbinger For Other States?

New York, N.Y. (June 3, 2020) - In normal times, many employees of New York businesses commute to and from their jobs in New York State from other states including New Jersey, Connecticut, and Pennsylvania. Because these nonresident commuters perform services in New York, their employers are generally required to withhold New York income taxes from their paychecks.

But what if, due to the COVID-19 pandemic, a nonresident employee has been teleworking from outside of New York, as opposed to commuting into the state? Does that change the employer's and employee's state income tax consequences? If the state enacts a piece of legislation currently under consideration by the New York Senate, known as S. 8396, the answer will be a resounding yes.

Current Law

Under a "convenience-of-the-employer" rule, an employer operating in New York must withhold New York State income tax from wages paid to an employee if (1) the employee spent at least one day during the year in New York; and (2) the employee is working from home outside New York for the employee's own convenience.

Possible Temporary Changes in Response to COVID-19

S. 8396 would characterize teleworking from home outside of New York State during COVID-19 as due to the necessity of the employer and not the convenience of the employee. As a result, such telework temporarily would be exempt from New York State income tax and income tax withholding.

If enacted, the bill would take effect immediately but would only apply to the period during which employers mandated that employees work from home as required by the emergency declaration in New York Executive Order 202. Executive Order 202 currently applies from March 7, 2020 to September 7, 2020.

If passed, this bill would provide New York employers welcome relief and certainty. Lewis Brisbois' COVID-19 Attorney Response Team is monitoring this legislation and will provide timely updates.

Additional Considerations

Besides New York State, New York City also imposes an income tax. How, if at all, the City's income tax would apply to the situation that S. 8396 addresses will need to be considered.

Furthermore, S. 8396 could portend similar developments for the income tax laws of other states . We will continue to highlight pertinent developments in this area as they arise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.