New Jersey Division of Taxation has issued further guidance regarding their implementation of a “Convenience of the Employer” rule. New Jersey is not the first state to implement such a rule but it is only applicable to states that specifically has a similar rule in place (e.g., New York, Connecticut, Delaware, etc…).
Under New Jersey’s “convenience rule,” the Division explains that if a nonresident taxpayer working for a New Jersey employer chooses to work from an out-of-state location (e.g., their home in their resident state) for personal convenience, their wages will be sourced and withheld in New Jersey. For instance, a New York resident telecommuting for a New Jersey employer will have their income deemed New Jersey sourced based on the New York “convenience of the employer” rule. This is contrary to the general payroll withholding rule of withholding in the state where the work is performed (e.g., Withholding New York wages if the work is performed in New York)
It’s important to note that New Jersey’s convenience rule is retroactive to January 1, 2023. As a result, New Jersey employers will need to adhere to these updated rules to make sure their employees are properly withheld. Similarly, taxpayers need to reach out to their HR department and adjust their withholdings and/or make estimated payments to ensure proper tax payment by April 15, 2024. However, New Jersey Division of Taxation assures that no underlying penalties and interest will be imposed provided that taxpayers comply with the new law starting September 15, 2023.