HARTFORD, Conn.– Telecommuting, a pandemic-era novelty that has become a permanent alternative for many people, has some Connecticut and New Jersey employees of New York-based companies wondering why they still have to pay income taxes to the Empire State.
Their home countries wonder this too.
Tired of missing out on hundreds of millions of dollars in tax revenue every year, New Jersey is now offering a state tax credit to residents who work from home and successfully appeal their tax bill in New York. Connecticut is considering a similar measure.
The Garden State’s incentive — a rebate worth roughly half of a person’s income tax refund paid to New York for the 2020-2023 period — has so far been claimed by one winning litigant since the state rescinded the offer. July did, according to the state’s report. Tax department. That taxpayer received a $7,797.02 refund for his efforts. Officials hope this person’s windfall will encourage others to follow suit.
Another New Jersey resident taking up the state’s offer is Open Weaver Banks, a tax attorney who would rather work from home than brave a “terrible” trip to the Big Apple. She has also filed one of a growing number of similar challenges.
“The refund and appeals process isn’t that intimidating to me,” says Banks, tax partner at Hodgson Russ LLP. “I’m here on the New Jersey team. I would like to see more residents do this. I think they have a very fair point.”
New York requires out-of-state commuters who work for New York-based companies to pay New York income taxes even if they no longer physically go to the office most days a week, unless they can meet very strict requirements for what they must doing. forms a bona fide home office.
A home office near a specialty track where new cars are tested, for example, might qualify if it can’t be replicated in New York. But a worker with specialized scientific equipment installed in his home that can be duplicated across the border would still have to pay, according to a memorandum from the New York State Department of Taxation.
When the nature of work was turned upside down in 2020, New York should have “softened” these requirements, Banks said. ‘And they didn’t. They just stand by and fight the claims.”
Both neighboring states have implemented “retaliation” rules that impact New Yorkers who work remotely for companies in Connecticut or New Jersey, but this workforce is much smaller and their total tax payments don’t make up the difference.
According to New York’s Citizens Budget Commission, taxpayers from outside New York State paid nearly $8.8 billion in taxes in 2021, about 15% of the state’s total income tax revenue. Of that, $4.3 billion came from New Jersey taxpayers and $1.5 billion from Connecticut taxpayers.
It is unclear how much of this was earned at home. But employees of companies based outside New York state who work remotely are increasingly appealing their tax bills, Amanda Hiller, acting commissioner and general counsel of the New York Department of Taxes and Treasury, recently told state lawmakers.
Hiller acknowledged that New York’s decades-old policy, known as the “convenience of the employer rule,” has created a financial burden for New Jersey and Connecticut, which provide their residents with tax breaks for income taxes they paid in New York. they are not double taxed.
New Jersey’s Division of Taxation said the state’s long-term goal is to completely overthrow New York’s rule, something that would likely require a legal challenge from a taxpayer to succeed in the U.S. Supreme Court. That could be a tall order: New Hampshire tried to sue Massachusetts for temporarily collecting income taxes from about 80,000 residents who worked from home during the pandemic, and the Supreme Court dismissed the complaint without comment.
New Jersey officials estimate it could bring in as much as $1.2 billion annually if residents who work from home for New York businesses are taxed at home. Connecticut could recoup about $200 million, officials say.
Connecticut Governor Ned Lamont has proposed an initiative similar to New Jersey’s, which would require final approval by the Legislature. However, it is unclear whether this can continue before the session ends on May 8.
“We think it’s an unconstitutional overreach by New York state,” Jeffrey Beckham, secretary of Connecticut’s state budget office, said recently. “We believe our residents should pay taxes to us, and they should pay at a lower rate.”
The top marginal income tax rate for individuals in New York is 10.90% as of January 1. According to the Tax Foundation, Connecticut’s top rate is 6.99% and New Jersey’s is 10.75%.
“A lot of people are being harmed by these laws,” said Edward Zelinsky, a Connecticut resident, tax law expert and professor at Yeshiva University’s Cardozo School of Law in New York City. “While New York and other states like to pretend these are rich people, the people most affected by this rule are often modest-income, middle-income people, people who can’t afford lawyers.”
Zelinksy has been trying, so far without success, to challenge New York’s tax rule for two decades, including an ongoing case over the income he earned working from home while his school was closed due to COVID-19 restrictions.
A small number of states, including Arkansas, Delaware, Nebraska and Pennsylvania, have tax rules similar to New York’s. New Jersey and Pennsylvania have a reciprocal income tax agreement.
Andrew Sidamon-Eristoff, who is uniquely positioned as a former New Jersey State Treasurer and former New York Tax and Finance Commissioner, believes that the right litigant will eventually “stand in the right court to challenge it.” .
But former New Jersey state Sen. Steven Oroho, an accountant who spent nearly two decades in New York City and who as a lawmaker pushed to address inequality, said he is skeptical of New Jersey’s commitment to these efforts, which places the financial burden of a potentially lengthy and expensive legal challenge on individual taxpayers.
“New York is very, very aggressive, and unfortunately, in my opinion,” Oroho said. “New Jersey has been extremely passive.”
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Associated Press writer Mike Catalini in Trenton, NJ contributed to this story.