EP NowEP StoreAcademySupportCommunityProducts by Country
Blog Home

NY Convenience Rule Impacts Remote Production Workers and Film Incentives

How remote employee payroll taxes apply to New York-based productions and if an employee’s physical location can affect film incentives.
September 13, 2022

Becky Harshberger

EP Blog-WIDE-NY Convenience Rule

I recently received a call from an EP client asking about an employee who worked in their New York production office. The employee had requested to work remotely from New Jersey – a situation that’s coming up more and more often these days – and the team wanted to know how this would impact their accounting.

The production asked two questions:

  1. Which state is eligible to receive income tax for this employee if they work remotely?
  2. Will allowing the employee to work from New Jersey reduce the New York film incentive?

Below, I’ll explain how New York income tax laws generally apply to remote employees, and what impact those laws may have on a production's tax incentives. I’ll also provide some context on what rules apply in New Jersey and Connecticut.

Tax implications of remote employees in New York

New York imposes a tax on non-residents for income "derived from sources in" New York, including income from a "business, trade, profession or occupation carried on" in the state. That being the case, if a non-resident production employee works from two locations (one in New York and one in another state), taxable income derived from New York sources would typically be determined by the proportion of days worked in New York vs. days worked everywhere. However, things get a bit more complicated due to the ‘convenience of the employer’ (COE) rule, often referred to as the ‘convenience rule.’

Passed in 2006, COE allows businesses to consider the wages of an individual who 1) is a resident of a state other than New York and 2) who works for a New York-based employer to constitute a New York source of income. The caveat is, if the employee is obligated to work outside the state out of necessity rather than convenience, this rule doesn’t apply. The regulation states, "any allowance claimed for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the services of his employer."

As an example, if an employee working in New York asks to work from home (in New Jersey) on Wednesdays for the employee’s convenience, and the production agrees to it, New York requires NY taxation for Wednesday’s pay.

In other words, while tax is generally allocated to New York State based on the number of days physically worked in the state, the convenience rule creates an exception based on physical location. As a result, wages for employees impacted by COE can typically be included in a production’s New York film incentive.

Several other states have followed New York’s lead and have incorporated “convenience of the employer” rules to determine how to tax non-resident remote employee income. These states include Connecticut, Pennsylvania, Arkansas, Delaware, and Nebraska.


COVID’s impact on remote workers in New York

When the State of New York closed nonessential businesses due to the COVID-19 pandemic in mid-March 2020, it was uncertain whether employees working from home due to government mandates should be taxed under the convenience rule.

Many assumed that employees worked remotely out of necessity, not convenience – rendering the convenience rule inapplicable. However, in an October 2020 update, the New York State Department of Taxation and Finance decreed, "if you are a non-resident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in [New York] unless your employer has established a bona fide employer office at your telecommuting location."

What does that mean exactly? To be considered "bona fide," an employer office must satisfy either a primary factor or at least four secondary and three other factors, which are listed below.

Primary factor: The home office contains or is near specialized facilities.

Secondary factors (must satisfy at least four):

  • The home office is a condition of employment
  • The employer has a bona fide purpose for the home office location
  • The employee performs core duties from the home office
  • The employee meets or deals with clients regularly at the home office
  • The employer does not provide the employee with a designated office space at its regular places of business
  • The employer provides reimbursement of substantially all expenses for the home office 

Other factors (must satisfy at least three):

  • The employer maintains a separate telephone line for the home office
  • The home office address is listed on business letterhead
  • The employee uses a specific area of the home exclusively for the business
  • The employee keeps inventory of products or samples at the home office
  • Business records are stored at the home office
  • The home office has a sign indicating that it is a place of business
  • Advertising for the employer lists the home office
  • The home office is covered by business insurance
  • The employee is entitled to home office expense deductions
  • The employee is not an officer of the company

The definition of a "bona fide employer office" exception is narrow, and therefore few pandemic-related work-from-home arrangements qualify. Meaning, most work-from-home employment was treated as New York-sourced income.

New Jersey tax legislation on remote workers

New Jersey residents and taxpayers who work from home while being assigned to work in New York receive "a credit against tax otherwise due for the amount of any income tax or wage tax imposed for the taxable year by another state of the United States or political subdivision of such state" for income also subject to tax under the Gross Income Tax Act, per N.J.S.A. 54A:4-1(a)

Translated, this means a New Jersey resident and taxpayer who is assigned to work in New York, but who is temporarily working remotely from New Jersey, can deduct double tax from their income when filing at the end of the year. The Supreme Court ruled it unconstitutional to dual-tax an individual’s income; this credit provides protections from double-taxation by refunding the duplicate tax at the end of the year.

How did the pandemic affect these rules? A temporary relief period was issued regarding employers withholding tax for teleworking employees based on jurisdiction, but it ended on October 1, 2021. The New Jersey Division of Taxation website states, “As of that date, employers should cease sourcing income in accordance with the employer’s jurisdiction. As required under the long-standing pre-pandemic rules, beginning on and after October 1, 2021, employers should resume sourcing income based on where the service or employment is performed and withhold New Jersey Gross Income Tax from such wages.”

Along with the general rule of providing a credit for taxes imposed by multiple states, this guidance makes it likely that a New Jersey resident employed in New York, but working from home in New Jersey, can claim a credit for taxes paid to New York, subject to general credit limitations.


Navigating income tax credits for Connecticut resident taxpayers assigned to work in New York

In 2019, Connecticut introduced a limited convenience rule which states, "for the purposes of determining compensation derived from or connected with sources within [Connecticut], a non-resident natural person shall include income from days worked outside this state for such person’s convenience if such person’s state of domicile uses a similar test." While this law applies specifically to Connecticut non-residents who telecommute to Connecticut from out of state, it may apply similarly to Connecticut residents who telecommute into a state that has a convenience rule, such as New York.

Like New Jersey, Connecticut provides residents protection from dual taxation by issuing a credit for any income taxed in Connecticut that is also taxed by another state or political subdivision in the United States within the same tax year. Again, it would be unconstitutional to deny credit in this situation, as it would lead to impermissible double taxation.

In March of 2021, the Connecticut Governor signed legislation clarifying that telecommuters who are residents of Connecticut and are assigned to work in New York would receive a credit on income taxed by both jurisdictions. That means that a Connecticut resident assigned to work in New York, who is working from home in Connecticut, will likely be entitled to a credit for taxes paid to New York, subject to general resident credit limitations.

Dual state tax battles continue

Every state wants to collect tax on any employee who is physically located in their state, regardless of where the employee's company is located, because that income tax is a source of revenue for the state. Not surprisingly, we've seen court cases born from convenience laws that contest the fairness of the law.

As remote work continues to evolve, payroll tax legislation will continue to change. The EP team wants to make sure you understand how complex legislation impacts your production’s payroll taxes and incentives. If you ever have questions, please don’t hesitate to reach out to us.


Related Content

New York Gov. Aims to Boost Film Tax Credits to $700M As New Jersey Rivalry Heats Up

Since 2020, at least 10 productions chose to film in New Jersey or other jurisdictions instead of the...

Production Incentives Update: February 2023

A look at changing film incentive programs across Illinois, New York, Puerto Rico, and Spain.
Master Series Budgeting 2023

Budgeting for 2023: Federal, State, and Incentive Considerations

Learn what Federal and State payroll tax changes are coming in 2023, plus tips for setting up your...

Preparing for Year End: Focus, Find, and Fix!

EP's payroll tax experts share best practices to identify and resolve payroll tax errors for a smooth year...

Film Industry Booms in Buffalo

Western New York draws top filmmakers with expanded tax incentives, new soundstages, and architectural...
INDUSTRY NEWS_EP at Sundance Film Festival 2023

Entertainment Partners Hosted Incentives Panel at the 2023 Sundance Film Festival

EP's Joe Chianese led an expert panel of film commissioners from across the globe discussing incentives,...
INDUSTRY NEWS_SQUARE_uk flag_big ben

Update on UK Film and TV Tax Relief Consultation

A look at how the UK government aims to modernise existing tax reliefs to better serve film industry...
Topic: UK

Illinois’ Historic Film Scene Grows to New Heights with Expanded Tax Incentives

For over 100 years Illinois has supported the film industry and thanks to recently passed legislation, the...
Virtual Production

The UK Invests in Virtual Production as Content Boom Continues

The UK is doubling down on Virtual Production infrastructure; learn how and why they’re leading the charge...
Topic: UK

Hawaii 2023 Loan-Out GET Tax Rule FAQs

Productions seeking a Hawaii tax credit must withhold and report general excise tax (GET) on loan-outs in...

Hawaii Production Tax Incentives Notice

Hawaii announces new rules and procedures for reporting and paying loan-out HI General Excise Tax (GET)...

UK Production Incentives All Producers Should Know About

Don't miss out on the UK's tax incentives, special programs, and national and regional funding...

Behind the Boom: Why the UK is a Hotspot for Production

Explore the generous industry incentives, talent, and infrastructure available to productions filming in...

Production Incentives Update: November 2022

Don't miss these US incentive programs, accepting applications now!

The Production Accountant’s Guide to Year-End Payroll

A step-by-step breakdown of how to navigate pitfalls and fix production payroll errors for a smooth year...

US Production Incentives Special Alert: Hawaii

Hawaii amends Motion Picture, Digital Media, and Film Production Income Tax Credit
EP Blog_SQUARE_Streaming service

Streaming Services Expand to Latin America and New Audiences

SVOD providers look to Latin America as a gateway to global stories and new subscribers
Western Canada

Production Tax Incentives in Western Canada Every Producer Should Know About

Alberta and Manitoba offer film and TV productions competitive tax incentive programs and versatile...
EP Blog_SQUARE_US Expanded Incentives 2022-2

A Record Number of US States Expand Filmmaking Incentives in 2022

Your guide to the latest news in production incentives and film programs to come from the 2022 legislative...
EP Blog_SQUARE_New US Incentives 2022

New US Film Incentives Introduced in Arizona, Indiana, Florida, and West Virginia

As production continues to boom, new tax credits and other programs welcome industry to new locations...
Los Angeles Times logo-sq

Hollywood production in U.K. soars to record levels as crews complain of burnout

Spending on film and high-end television shoots reach record-breaking amounts as production activity...
EP Webinar Panelists - US Production Incentives Update

US Production Incentives Update: New and Expanded Programs in 2022

Film commissioners Colleen Bell and Sandy Lighterman, and production executives Jay Roewe and Ashley Rice,...
EP Blog_SQUARE-Atlantic Canada Expands Incentives

Atlantic Canada Expands Film Incentives in 2022

Enhanced production incentive programs attract industry to Newfoundland & Labrador, Nova Scotia, and...

The Future of Streaming and Production Growth in Africa

Streaming services lead a promising wave of African productions set to entertain local and global...

UK Employment Law Changes Production Companies Should Be Aware Of

The UK government is considering a suite of legal changes which – if passed into law – will affect your...
Topic: UK
Master Series: SB 1162 Panelists

SB 1162: What Studios Need to Know about the New California Pay Data Reporting Law

Learn about California’s new expanded pay data reporting law, SB 1162, and how it applies to the...
Topic: Legal
New York Now Requires Employers to Provide Workplace Posters and Notices Digitally

New York Now Requires Employers to Provide Workplace Posters and Notices Digitally

Any legally required workplace notices and posters must also be made available digitally to employees who...
New York Requires Pay Transparency in Job Postings and Advertisements

New York Requires Pay Transparency in Job Postings and Advertisements

Employers with four or more employees are required to include the salary or hourly pay rate, or a minimum...
New York City COVID-19 Vaccine Mandate Ended November 1, 2022

New York City COVID-19 Vaccine Mandate Ended November 1, 2022

As of November 1, 2022, private sector employers will no longer be required to mandate that all in-person...

Meet the Unit Production Manager

Carrie Holt de Lama ('The Bear') and James McAlister ('Power Book IV:Force') on how the UPM guides the...

Allowable Mileage Changes in 2023

Driving to and from set? Here's what production workers need to know to maximize allowable mileage...

Embracing the New W-4: 2023 Updates

Answers to some of the most common questions about the controversial W-4 tax form.

7 Things Production Finance Teams Need to Know for Budgeting in 2023

Mark Hammond, VP of International Finance & Ops, shares some of the key factors production finance teams...

Production Tax Incentives Notice: Hawaii

Hawaii Department of Tax (DoTax) issues Tax Advisory notice on tax obligations of persons working in the...
Topic: Alerts

Meet the Music Supervisor

Kasey Truman ('Grey’s Anatomy,' 'The Sandman,' 'Fire Country') on the art of creating cinematic...

Production Incentives Update: December 2022

A look at changing film incentive programs across the US, Canada, and Czech Republic.

Budgeting and Forecasting Film and Television Residuals

What production accountants need to know to confidently budget and forecast for residuals.

US Federal Tax Changes That Can Impact Your 2023 Production Budget

A production accountant's quick-guide to federal tax changes coming in 2023.

Entertainment Partners at 2022 Institute on Entertainment Law and Business

EP's Production Incentives Practice Leader, Joe Chianese, joins panel to educate producers on the wide...

Film Community and Industry Jobs Grow in Washington State

Thanks to new funding and a continuous effort by Amy Lillard, Executive Director of Washington Filmworks,...

Special Report: Entertainment – A Hollywood Education

It’s the best of times and the worst of times for employment in the entertainment/streaming industry.

Special Report: Entertainment – Soundstage Gold Rush

Hollywood is experiencing an ongoing boom that fills its Los Angeles production hub to overflow levels.
EP Blog_SQUARE_Creating a development budget

The Beginner’s Guide to Creating a Development Budget

Before you start the filmmaking process, learn what basics you need to budget for to get your idea off the...
UK Gov Growth Plan

Mini Budget; Big Changes: What the UK Government’s Growth Plan Means for Production 

UK Chancellor Kwasi Kwarteng announces new Growth Plan (aka the “mini budget”) and a big shake up of the...
Topic: UK
Changes to UK right to work checks

Important Changes to UK Right to Work Checks

On September 30, 2022 the UK rules around right to work checks will change. Here’s what productions need...
Topic: UK
Master Series Square Thumbnail-Film Financing-Crowdfunding

Film Financing Explained: Crowdfunding

Emily Best (Seed&Spark), Stacy Bradford (Indiegogo), and producer Zach Fineblum join us to discuss the ins...
EP-Newsroom-Below the Line-Thumbnail-480

Union Roundup: Production Incentives Experts Gather, Hoping Hollywood Can Bring Economic Recovery As We Learn to Live With Covid

Entertainment Partners offered an update on U.S. Production Incentives for 2022. The seminar focused on...
Streaming platform on tablet device

The Evolution of Residuals: How Streaming Changed the Model

Understanding how residuals payments are calculated for new content on streaming platforms.

Payroll & Finances

PayrollResidualsSmartStartNew SmartTimeProduction PortalEP On LocationSmartAccountingEP LiveSmartPOCASHétPayPaymaster Rate GuideEP Residency

Manage Multiple Productions

AssetHubSmartHubSmartHub Vault
Subscribe now

Be an industry insider with EP's
newsletters and alerts

LegalPrivacy NoticeSecurity
© 2023 Entertainment Partners. All rights reserved.