* State’s revised withholding guidelines stress the home isn’t a viable workplace
Federal government is headed for a showdown with New York State over telework.
The government’s commitment to telework is firm. Aside from the Federal telework mandate (section 359 of Public Law 106-346), pending telework legislation includes the Small Business Telework Act and the Continuity of Operations Demonstration Project Act. The Department of Labor recently set aside $1 million to pilot using telework to employ disabled people.
In an unprecedented move, the House Appropriations Committee wrote into the 2005 Federal Appropriations Bill a $5 million penalty against executive agencies that can’t prove 100% of eligible employees have been offered telework within two months of it becoming law.
The Departments of Commerce, Justice, the Judiciary, the Securities and Exchange Commission and the Small Business Administration will also need to submit quarterly program status reports to the Appropriations Committee, including the number of eligible and participating employees; and designate a telework coordinator to oversee the program and serve as Committee liaison. If they fail, $5 million will be set aside from each of their budgets until they comply.
“It seems inconsistent for the Federal government to take all these pro-telework measures, only to sit around and let states like New York undermine the capacity of those programs to deliver their intended benefits,” says Nicole Belson Goluboff, an attorney specializing in telework and author of The Law of Telecommuting.
Of course, New York State undermines telework by requiring non-resident teleworkers pay tax on 100% of their income, even if they’ve spent much or most of the year working in a home office. (See “Fighting for fair telework tax,” https://www.nwfusion.com/net.worker/news/2004/0607netlead.html) – known as the “convenience rule.”
Specifically, the rule says New York will give non-resident teleworkers a tax credit for the taxes paid on the income earned while teleworking in their home state, but only when that work is done for the convenience of the employer, not of the employee. This means New York grants a credit only when the employer needed the employee to work out of state, but not when the employee worked at home casually, nor as part of a formal corporate telework program. Most teleworkers don’t meet this condition, and must pay taxes on 100% of their income to their home state as well as to their employer’s state, New York.
Pressured by their teleworker constituents, Connecticut Sen. Christopher Dodd (D-Conn.) and Rep. Christopher Shays (R-Conn.) last summer each introduced versions of the Telecommuter Tax Fairness Act, a bill that would invalidate the convenience rule by preventing states from taxing income on work performed beyond their borders https://www.nwfusion.com/net.worker/columnists/2004/0823kistner.html
Meanwhile, the New York State Department of Taxation and Finance recently released a new set of tax guidelines for its field auditors. A link to the guidelines follows, but the gist is, “New York State doesn’t consider the home a valid work site, at least from a tax perspective,” Belson Goluboff says.
The new guidelines don’t address the burden double taxation puts on teleworkers, in fact it specifically says teleworkers are ineligible for the tax credit if they work even a day in New York. However, they do attempt to ease employers’ liability for failing to withhold taxes properly.
Under the old guidelines, if a non-resident teleworker didn’t expect to come to New York all year, the employer didn’t need to withhold the employee’s tax. But if that employee made an unanticipated business trip to New York, say, in December, the employer could face penalties for failing to withhold income tax for the entire year.
The new rules include a form employees can fill out at the start of the year estimating the percentage of time they expect to work in New York. By filling out this form, the employee absolves the employer for not withholding correctly. However, the employee still needs to pay the full year’s taxes to New York, form or no form.
Chances are slim the Telecommuter Tax Fairness Act will pass in this lame duck session, but Shays and Dodd are expected to reintroduce the bill in January. You can bet New York will put up one hell of a fight, given the tax revenue at stake.
