August 2, 2023
Employment Tax
Impact : High
Summary
On July 21, 2023, New Jersey Governor Phil Murphy signed into law Assembly Bill 4694 establishing New Jersey’s “convenience of the employer” rule and providing various tax credits related to remote work. Under New Jersey’s convenience of the employer rule, non-resident employees assigned to a New Jersey work location must source days spent working remotely (i.e., working from home) outside New Jersey for the employee’s own convenience if the employee is a resident of a state that imposes a convenience of the employer rule on New Jersey residents. In addition, Assembly Bill 4694 provides qualified taxpayers with a credit against New Jersey gross income tax otherwise due of $2,000 in a taxable year; a qualified taxpayer is defined as a “taxpayer who is a New Jersey resident and whose employer has assigned that individual a work location outside of the State, who seeks from the employer and accepts a permanent reassignment of work location to a New Jersey location during the taxable year. Additional programs included in the bill provide tax incentives to certain taxpayers and businesses.
Overview
Convenience of the Employer Rule:
Assembly Bill 4694 establishes a convenience of the employer test for residents of states that impose a similar test on New Jersey residents. As an example, under New York’s convenience of the employer rule a New Jersey resident assigned to a New York work location must source days spent working from home in New Jersey for the employee’s own convenience to New York; under New Jersey’s convenience of the employer rule New York residents assigned to a New Jersey work location must now source days spent working from home in New York for their own convenience to New Jersey. New Jersey will not apply its convenience of the employer rule to residents of states that do not impose a convenience of the employer rule on New Jersey residents, nor will the rule have any impact on New Jersey’s withholding reciprocity agreement with Pennsylvania (i.e., Pennsylvania residents that qualify for exemption from New Jersey gross income tax under the reciprocal agreement will remain exempt as long as they still qualify under the reciprocal agreement). New Jersey’s new convenience of the employer rule will apply to tax years beginning on or after January 1, 2023. More information from the New Jersey Division of Taxation on how to retroactively apply this new requirement is expected to be released in the coming months.
States that currently impose a convenience of the employer test include Connecticut, Delaware, Nebraska, New York, and Pennsylvania.
Tax Credits related to Remote Work:
Assembly Bill 4694 establishes a non-refundable gross income tax credit of $2,000 for the taxable year per qualified taxpayer, which is defined in pertinent part as a taxpayer assigned to a work location outside of the State who requests and accepts a reassignment from their employer to a New Jersey work location. Per the bill, this section is expected to take effect immediately.
An additional tax credit applicable for tax years beginning on or after January 1, 2020, but before January 1, 2024 allows remote workers who are subject to the convenience of the employer rule in other states to claim a refundable gross income tax credit against their New Jersey gross income tax liability. A New Jersey resident taxpayer is eligible for this credit if the following are present: (1) the taxpayer paid income or wage tax to another jurisdiction; (2) the taxpayer applied for and was denied a refund from such jurisdiction on income derived from services rendered while the New Jersey resident taxpayer was within New Jersey; and (3) the taxpayer filed an appeal protesting the jurisdiction’s denial of refund and obtained a final judgment from the jurisdiction’s tax court which grants the taxpayer an income tax refund on the grounds that the income was derived from services rendered while the resident taxpayer was within New Jersey. This credit equals 50% of the taxes owed to New Jersey due to the readjustment of New Jersey’s credit for taxes paid to another state.
Finally, the bill establishes a pilot program to be administered by the New Jersey Economic Development Authority which will provide grants to businesses who reassign their New Jersey resident employees from work locations outside of the state to New Jersey locations. A business is eligible for a grant under the pilot program if the business has 25 or more full time employees and is principally located in another state. All grant applications must be filed on or before July 1, 2028.
How we can help
Vialto can assist you in complying with your responsibilities related to the New Jersey convenience of the employer rule, including reviewing remote employees’ state resident and work location to ensure accurate payroll tax set up and advising on specific tax withholding requirements.
Please reach out directly to your Vialto contact or one of the individuals listed below to discuss.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
• Tina Schrob, Partner | cristina.g.schrob@vialto.com
• Greg Fetter, Partner | gregory.fetter@vialto.com
• Ligeia Donis, Partner | ligeia.m.donis@vialto.com
• Priya Schwartzburt, Director | priya.c.schwartzburt@vialto.com
Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
© 2023 Vialto Partners. All Rights Reserved.