Individual SALT Issues Arising From COVID-19 Travel Restrictions

June 12, 2020

Since the middle of March, most states in the country, especially those in the Northeast, have imposed business shutdown orders and travel restrictions that prohibit individuals from traveling to work, etc.  As a result, many employees who would otherwise be traveling across state lines to work are now working from home.  Also, many individuals have decided to move out of more populated areas to take up residence in vacation homes, etc. that are located in other states.  These factors can give rise to State and Local Tax (SALT) implications for employers and individuals. The following discussion covers the implications for individuals. The implications for businesses are discussed in a separate article.

Withholding and the “Convenience of the Employer” Test

Generally, for withholding purposes, employees’ wages for the performance of personal services are sourced to the state where the work is performed by the employee.  Therefore, for employees that work remotely, generally, withholding is due to the state in which the employee is working remotely, rather than the state where the employer is located.

New York

However, some states (i.e., Connecticut, Delaware, Nebraska, New York, Pennsylvania and the City of Philadelphia) have implemented what is referred to as the “Convenience of the Employer” test.  Generally, in a state that applies this test, wages earned by a nonresident are allocated to the employer's location unless the nonresident works from an out-of-state location due to the necessity of the employer rather than the convenience of the employee.  For example, pursuant to New York regulation 20 CRRNY 132.18, “if a nonresident employee performs services for his employer both within and without New York State, his income derived from New York State sources includes that proportion of his total compensation for services rendered as an employee which the total number of working days employed within New York State bears to the total number of working days employed both within and without New York State…..However, 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 service of his employer.”

Based on the rule set forth above, generally, employees of a New York employer who are working remotely from their homes in other states such as New Jersey, Connecticut, etc. must be working outside of New York out of necessity in order for their wages to be sourced outside of New York for withholding and income tax purposes.  Clearly, employees currently working from home due to the COVID-19 pandemic are not doing so out of convenience but out of necessity due to state-mandated shutdown orders.  Therefore, wages resulting from days that the employees are working from home outside of New York due to the COVID-19 pandemic should not be subject to New York State withholding or individual income tax.  


Connecticut has also adopted the “Convenience of the Employer” test but in a limited scope as it applies only with respect to residents of states that have adopted their own “Convenience of the Employer” test such as New York and Pennsylvania.  For example, in determining whether income earned by a New York resident individual telecommuting for a Connecticut employer will be deemed Connecticut-sourced income, Connecticut will apply the New York “Convenience of the Employer” test.  Therefore, if an employee's state of residence is in New York, and the employee works for a Connecticut employer from a location in New York for their own convenience, then the Connecticut employer must include those days as days worked in Connecticut and withhold accordingly.  Conversely, employees of a Connecticut employer who are currently working from home out of necessity, such as due to the COVID-19 pandemic state-mandated shutdown orders, would not be subject to Connecticut withholding or individual income tax relative to those days.


Similar to New York, Pennsylvania has also adopted the “Convenience of the Employer” test for determining where a telecommuting employee’s wages should be sourced for both withholding and individual income tax purposes.  Generally, the same analysis described above for New York would apply to employees working from home for a Pennsylvania-based employer.  However, the Pennsylvania Department of Revenue has published guidance on its website that states that if an employee is working from home temporarily due to the COVID-19 pandemic, the Department would not consider that as a change to the sourcing of the employee’s compensation.  Accordingly, if an employee is working for a Pennsylvania-based employer, the employee’s compensation remains a Pennsylvania source, and the employer is required to withhold Pennsylvania tax on their compensation unless the state where the employee lives and is working from has a reciprocal agreement, as most states bordering Pennsylvania do (Delaware and New York do not).


Philadelphia has also adopted the “Convenience of the Employer” test in determining the sourcing of wages for employees who are telecommuting.  The Philadelphia Department of Revenue has also issued guidance on this issue in the form of a Wage Tax Policy issued on May 4, 2020.  The Department stated that employees of Philadelphia-based employers who are required to work outside the city (such as due to COVID-19) are exempt from the city’s wage tax for days spent fulfilling that work.  However, the Department has further elaborated that “an employer may choose to continue withholding the Wage Tax from 100% of a non-resident employee's compensation. This is a business decision, not a requirement.”  Accordingly, an employer may continue to withhold the Philadelphia wage tax from the nonresident telecommuting employee’s compensation but is not required to do so during the COVID-19 pandemic shutdown.  Non-residents of Philadelphia who continue to have wage tax withheld from their compensation will have to file wage tax refund petitions next year.

New Jersey

New Jersey has not adopted the “Convenience of the Employer” test in determining the sourcing of wages for employees who are telecommuting.  Generally, New Jersey’s sourcing rules state that income is sourced based on where the service or employment is performed.  However, the New Jersey Division of Taxation has issued guidance on its website stating that “during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction.  The Reciprocal Personal Income Tax Agreement between New Jersey and Pennsylvania eliminates wage sourcing issues for these employees as there is agreement to not tax the wages of a resident of the other state.”  Accordingly, the wages of employees working remotely due to the COVID-19 pandemic will continue to be sourced to New Jersey for withholding and income tax purposes.  Therefore, employers will not have to go through the arduous process of changing withholding in their payroll systems based on these employees working remotely. 

Temporary Presence in the State and Personal Income

New York’s Governor Cuomo has stated recently in a press conference that any out-of-state resident who has come to New York to work on coronavirus relief is subject to New York income tax if they spend more than 14 days in New York.  This is in stark contrast to several other states that exempt workers who come into the state for “emergency purposes” from income tax.  However, the states of Connecticut, New Jersey and Pennsylvania do not expressly exempt wages earned by emergency workers in their states from their income taxes, so it is very possible that medical professionals, etc. who have traveled to those states to work may have to pay income taxes to those states.

Residency Issues for Persons Quarantining Away From Home

As a result of the pandemic, many people have fled the cities and suburbs and have taken up residence in their vacation homes.  For instance, a resident of New York City might now be taking up temporary residence in their home at the New Jersey shore.  Most states with an income tax define residency in two ways: “domicile” residency and “statutory” residency.  Your state of “domicile” is the state to which you intend to return once you are done doing whatever it is that you’re doing.  It is the state that you, in your mind, consider your “home” state.  Even though you might be absent from your state of domicile for an extended period of time, that state will still tax you on your worldwide income.

Statutory residency is conferred on individuals who are not domiciled in a state but who instead spend a considerable amount of time in the state and, generally, own or have access to a home there.  Most states with a statutory resident rule provide that if you are physically present in the state for more than 183 days (some states use a longer period) and have a “place of abode” there, you are a statutory resident and subject to that state’s income tax on your worldwide income.

So now let’s take the example of our individual who normally lives in New York but who began living in New Jersey at the outset of the shutdown and shelter-in-place orders in mid-March.  They intend to return to their New York home after the pandemic is over and therefore remain domiciled in New York, but they will still be spending a considerable amount of time in New Jersey this year.  If they spend more than 183 days in New Jersey, New Jersey will treat them as at least a part-year resident.  Now this individual is subject to tax on their 2020 income by both New York and New Jersey.  In the case of earned income, the state in which it is actually earned will get to tax it first.  The individual will still have to include this income on the other state’s tax return but the other state will provide a credit against its tax for some or all of the tax paid to the state where the income was earned.  Consequently, if the individual is working from their home in New Jersey, they will pay tax to New Jersey on their wages.  Their wages are also subject to New York tax, but New York will grant them a credit against its tax for some or all of the tax paid to New Jersey.  However, if they are a domicile resident of New York City, they will not receive any credit against the New York City income tax for any tax paid to New Jersey.

When it comes to unearned income though (interest, dividends, capital gains, royalties, etc.), taxpayers may find themselves in a situation where both states will tax the same income and will not provide any credits for taxes paid to either state.  For instance, the states of New York and Connecticut do not provide credits against their tax for taxes paid to other states on investment or portfolio income.  Last year the New York Court of Tax Appeals[1] determined that statutory residents of New York who were domiciled in Connecticut were not entitled to any credits against their New York tax for income taxes paid to Connecticut on investment income.

Based on the above discussion, individuals who are temporarily living away from their “home” state and intend to be away for a significant amount of the year (generally 183 days or more) must be cognizant of the fact that they may unwittingly become a “statutory” resident of the state where they are temporarily living and therefore may have to pay income taxes to both states on their earned and unearned income.  Also, the cities of New York and Philadelphia impose income taxes on their residents and have the same residency rules but without the benefit of credits for taxes paid to other states, so a resident of either city who is living elsewhere this year will still have to pay tax to the city as long as they remain domiciled there, and changing one’s state and city of domicile is not an easy task.

If you would like more information on any of these issues, please contact Jennifer Prendamano at or Jay Brower at

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[1] See Edelman v. Department of Taxation and Finance, 2019 NY Slip Op 66249 (Mar. 26, 2019), and Chamberlain v. Department of Taxation and Finance, 2019 NY Slip Op 66247 (Mar. 26, 2019).

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