Tuesday, March 18, 2014

Proposed Act Challenges Convenience of the Employer Test

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Representative James Himes, a member of the U.S. House of Representatives from Connecticut, has introduced the “Multi-State Employee Tax Fairness Act” in Congress that would prohibit the convenience of the employer test. According to Himes, “no employee should have to pay income tax to two states on the same income.” His proposed legislation would make it so that an employee would be taxed in a state only when the employee is physically present and working in that state.

The convenience of the employer test allows for employees who commute for work to have their income taxed not only in their home state but also in the state in which a job is performed. There are three states that use the convenience of the employer test—Nebraska, Pennsylvania, and New York.

Confused by how the test works? If you are an employee who lives and works in Connecticut but also telecommutes and works in New York, you will be taxed in New York on all the income you earn in both states unless it can be proven that the work done in Connecticut is for the employer’s necessity and not the employee’s convenience. The end result is that an employee is taxed in both New York and Connecticut for the same work.

See PayState Update Volume 16, Issue #6 for more information on the test and the proposed legislation.