Telecommuting has become a permanent alternative for many employees of New York-based companies in Connecticut and New Jersey, raising questions about why they are still required to pay personal income tax to New York. In response to losing out on significant tax revenue, New Jersey is offering a state tax credit to residents who work from home and successfully appeal their New York tax assessment, with Connecticut considering a similar measure.
New Jersey's tax credit, which amounts to roughly half of the income taxes paid to New York for the 2020-2023 period, has already been claimed by one individual, receiving a refund of $7,797.02. This initiative aims to encourage more residents to challenge their tax assessments. The issue stems from New York's requirement for out-of-state commuters working for New York-based companies to pay New York income taxes, even if they primarily work from home, unless they meet strict criteria for a bona fide home office.
Both New Jersey and Connecticut have implemented retaliatory tax rules affecting New Yorkers working remotely for companies based in their states, but the impact on tax revenue is minimal compared to what New York receives. Out-of-state taxpayers contributed nearly $8.8 billion to New York in 2021, with a significant portion coming from New Jersey and Connecticut residents.
New Jersey aims to challenge New York's policy through legal means, potentially leading to a Supreme Court case. Connecticut is also pursuing a similar initiative to protect its residents from double taxation. The discrepancy in tax rates between states further complicates the issue, with New York having a higher top marginal income tax rate compared to Connecticut and New Jersey.
Experts and officials argue that these tax laws disproportionately affect individuals of modest or middle income who may not have the resources to challenge them. While some states have similar tax rules to New York, efforts are being made to address the inequities faced by out-of-state remote workers. The ongoing debate highlights the complexities of taxation in an increasingly remote work environment.
