Average daily office occupancy in New York City has bounced back from 2020-21 lows, but by most accounts remains well below pre-pandemic norms. Most city employers reportedly are now resigned to a “hybrid” approach, which means a lower average worker presence in the long term. This could spell big trouble for the city’s fiscal and economic outlook — not to mention the finances of the Metropolitan Transportation Authority, facing massive deficits due to plunging fare revenues.

But there’s been one constant in New York State’s fiscal picture despite the pandemic disruption: during the first year of the Covid-19 outbreak, personal income taxes (PIT) paid by full-year nonresidents continued flowing as if nothing had happened, even though very few of these taxpayers were venturing into the Empire State. The non-resident share of New York PIT hit an all-time high of nearly $8 billion in 2020, up nearly $500 million from the previous year, according to state tax data. Non-residents accounted for 14.6 percent of the state’s $54.5 billion in total PIT receipts in 2020.

Two-thirds of the nonresident total came from New Jersey and Connecticut residents — most of whom, census data indicated, were commuting to jobs in New York before COVID-19 hit. Residents of those two states paid a combined $5.2 billion in New York income taxes in 2020, also a record. This represented an increase of about $200 million, or 3.7 percent, from the 2019 total, even though the number of New Jersey and Connecticut filers decreased by about 3.4 percent from the previous year (even as more New Yorkers were beginning to migrate to those two states).

Notwithstanding New York’s huge job pandemic lockdown-driven job losses, New Jersey and Connecticut residents earned more than ever from New York employers and pass-through business entities in 2020, averaging $138,879 and $196,241, respectively. By comparison, New York full-year resident taxpayers reported an average gross income of $87,548 (including an enormous surge in capital gains from investments, which aren’t included in the nonresident total).

Thanks to their high average incomes, the relatively small number of nonresident taxpayers are an outsized share of the total New York PIT base. For example, the $3.9 billion in New York income tax paid by 467,190 New Jersey residents in 2020 was roughly $750 million more than the total generated by the 1.24 million filers living in the 14 counties comprising the Western New York and Finger Lakes regions, including the Rochester and Buffalo metro areas. Among PIT tax filers living in New York counties outside New York City and Long Island, only the 477,258 Westchester residents generated more state income tax in 2020 than the $1.3 billion paid by 97,504 Connecticut-based taxpayers.

Where the taxpayers ROAM

As explained in this December 2020 post, New York’s taxation of nonresident telecommuters is grounded in a legal doctrine known as the “convenience of the employer” rule. Not surprisingly, this and other features of New York’s tax code have resulted in a very low ranking for the Empire State on the new Remote Obligations And Mobility (ROAM) Index, unveiled today by the National Taxpayers Union. As explained in the report:

“Convenience of the employer” rules are requirements that taxpayers who live and work in another state must nevertheless pay income taxes to their employer’s state, even if they may never physically set foot in it. The term comes from New York, which imposes such a rule on employees of in-state companies unless the taxpayer proves to New York officials that working remotely is a necessity, not merely a “convenience.” Taxpayers rarely win.

For example, a New Jersey resident commutes from New Jersey to an office in New York City. Growing tired of the long commute, the New Jerseyan receives permission from their employer to switch to remote work from their New Jersey home. Because New York has determined that avoiding a commute is merely “convenience,” New York requires the taxpayer to continue paying New York income taxes.

Convenience of the employer rules are fundamentally illogical and cause significant confusion. These rules are also particularly harmful because they can result in double-taxation. Generally, when a taxpayer is required to file taxes in two states, they can receive a credit against taxes paid to one of the states, thereby avoiding being taxed by two states on the same income. However, when a high-tax state like New York claims the power to tax the income of a taxpayer who lives and works in another state, there is the risk of the taxpayer being caught in a tug-of-war between the two states, risking double-taxation.

The NTU report poses the question “Which States Are Best for Remote Workers?” The answer, unsurprisingly, could be summed up as “not New York.” The Empire State’s ROAM Index rank was 47, barely above those for the hardly comparable states of Delaware, Arkansas, and Nebraska. The NTU concludes:

States cannot keep their heads in the sand and pretend that the economy is not changing. Tax policies play a major factor in residency decisions, and remote work will likely accelerate tax migration. States can either resist the trend and bleed taxpayers, or embrace it and work to become competitive.


States scoring poorly on the ROAM Index should take it as a wake-up call that they are at risk of shutting themselves off from a digitizing economy. The quickest way to stifle the benefits of remote work to taxpayers would be a race to the bottom on policies such as convenience of the employer rules that seek to rewrite reality on where taxpayers are working.

Well, yes — but in New York’s case, “rewriting reality” is easier said than done.  Commuter and other nonresident taxes are such a large part of Albany’s revenue base that it’s safe to say New York State will never voluntarily change its rules—unless forced to do by the federal government. If Republicans ever capture control of Congress, it could happen; while the new GOP House Majority is initially fixated on getting federal government workers back in the office full-time, Republicans in both houses would no doubt be disposed to like a new version of the Remote and Mobile Worker Relief Act introduced by Sen John Thune of South Dakota two years ago.

Meanwhile, New Jersey leaders have begun to gripe more loudly about the New York tax burden on their remote-working residents, and about the resulting net revenue loss for the Garden State (which gives its residents a full dollar-for-dollar credit to make up for generally higher New York taxes).  Gov. Phil Murphy began saber-rattling around the issue a few months ago, rolling out “bipartisan legislation designed to provide relief to New Jersey residents facing unjust taxation from other states where their employer is based.” From Murphy’s Sept. 1 press release:

“This is an issue that warrants no debate; on both sides of the aisle, we can all agree that we must protect our residents from unfair and inordinate taxation from other states,” said Governor Murphy. “The proposals I’m announcing today, while supporting our hard-working residents in their efforts to dispute such taxation, will help promote employment in New Jersey and counteract lost tax revenue to our neighbors. Amid profound political divisions across the country, I look forward to achieving bipartisan support for legislation that will ensure a fiscally healthier and fairer New Jersey.”


Under the first initiative, New Jersey would adopt its own “Convenience of Employer” provision, which would allow the State to tax employees of New Jersey firms if they work at home in other states for their own convenience (instead of the employer’s need). This will start the process of creating parity with New York, which has its own provision that it uses to tax New Jersey residents working for New York firms who work at home for their own convenience, and with all other states that maintain the same legal rule.

Under the second initiative, the State would award tax credits to incentivize New Jersey residents to file legal actions against other states that collect taxes from them for services they perform while physically located in New Jersey.

Finally, the third initiative would establish a one-time $10 million pilot program, to be administered by the New Jersey Economic Development Authority (EDA), which would provide grants to certain businesses that assign their employees to New Jersey locations, incentivizing job growth and capital investments throughout the state.

The pilot program to incentivize more New Jersey locations for “certain businesses” is too small to make any difference, but the “second initiative” on Murphy’s list is the one that should worry Governor Kathy Hochul.

New York and other high-tax states with aggressively enforced commuter taxes dodged a bullet last year when the U.S. Supreme Court effectively turned back a legal challenge by the state of New Hampshire to a tax Massachusetts had imposed on nonresidents.  Massachusetts has since rescinded the tax, but the constitutionality of state taxes on remote-working nonresidents remains open to formal legal challenges — which are certain to materialize, especially if New Jersey and other states goad their residents into suing.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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