Key Takeaways
- Learn how hiring New York-based remote workers can create a tax nexus for your business.
- Discover the corporate, sales, and payroll tax obligations that come with establishing nexus in New York.
- Get practical guidance on best practices to stay compliant and avoid costly penalties when managing remote teams.
Is Your Remote Workforce Quietly Creating a Tax Bill in New York?
Hiring across state lines expands your talent pool, but it also broadens the demand for where you owe tax. In New York (NY), enforcement is stringent. A single employee based in the state can create a tax nexus, which will automatically trigger tax registration requirements, payroll tax withholding, unemployment insurance, and more.
This guide explains how remote workers trigger nexus in New York and what to put in place to stay compliant.
What Is Tax Nexus?
Tax nexus is the tax connection between your business and a state. It may require filing, collection, and remittance – even if your HQ is elsewhere. Nexus is generally activated through physical presence, economic activity, or employees on the ground.
How Remote Work Creates Nexus in New York (and What This Means for Your Business)
In New York, you create nexus if you:
- Have an NY-based employee performing core business functions.
- Treat a home office in NY as a regular business location.
- Deliver in-person services in the state.
- Store or fulfill inventory from NY (including through third parties).
- Cross NY’s economic-nexus threshold by generating over $500,000 in receipts and more than 100 sales of tangible property in the last four quarters.
Business & Tax Implications (What to file once nexus exists)
What does it mean for your business if you trigger nexus in NY State?
- Payroll withholding: You must withhold NY state income tax on New York-sourced wages.
- Unemployment insurance (SUI): You must register with the NY Department of Labor and pay NY unemployment contributions on covered wages and apply multi-state “localization” rules where relevant.
- Corporate/franchise tax: File NY returns; apportion receipts to NY; watch combined filing triggers.
- Sales & use tax: Register and collect or remit if your NY sales are taxable.
- Registration timing: You should register before first payroll to avoid penalties, interest, and messy retroactive corrections.
- Recordkeeping: You should document each employee’s assigned office, work locations, and keep your HR/payroll systems in sync to prevent Back taxes or penalties in case of state or federal audits.
Note that P.L. 86-272 – a 1959 federal law that shields a business from a state’s net income tax when its only in-state activity is order solicitation – may apply to sellers of tangible goods, but it doesn’t affect payroll. You still must withhold NY income tax from paychecks and pay New York unemployment insurance.
Understanding The Convenience of the Employer Rule in New York
If you appoint remote staff, you can’t ignore the Convenience of the Employer rule. Essentially, the principle says that if a nonresident employee is assigned to a state office (in this instance, New York), days they work outside the state usually still count as New York workdays; unless the reason for being outside New York is an employer necessity, not just personal choice.
This rule was designed to prevent sidestepping NY taxes. Why it matters for you:
- For your employees: They may still owe New York income tax on telework days from another state. Their home state may also tax those wages, and while a credit could apply, double taxation is a real risk.
- For your business: You may need to withhold New York income tax based on the employee’s assigned NY office, even if they log in from another state.
What Counts as Employer Necessity?
To honor the rule, employee tax exemption will only be permitted for days they are required to do client work outside NY, when they make use of specialized equipment located in another state, or for other documented business needs. Personal reasons will not be tolerated in this instance.
Your to-dos:
- State the assigned office clearly in offer letters and policies.
- Document when remote work is an employer requirement.
- Keep payroll systems aligned with the rule and maintain simple location records.
- Don’t assume a “work from anywhere” culture cancels out NY withholding.
Best Practices for Managing New York Tax Nexus with Remote Workers
Once nexus is triggered, compliance isn’t optional, but it doesn’t have to be overwhelming. By putting the right systems and policies in place, you can minimize risk, reduce admin headaches, and give your employees clarity on their tax obligations. Consider these best practices:
- Stay abreast of evolving tax laws. New York updates thresholds, sourcing rules, and compliance guidance regularly. Monitoring changes helps you stay ahead of new obligations.
- Implement software for location tracking. Use accounting software and payroll tools to track where employees work, and automate income sourcing and apportionment for better accuracy.
- Communicate double taxation risks with employees. Make sure staff understand New York’s withholding rules and risks for double taxation if they travel between states.
- Partner with a multi-state focused CPA that can help you handle payroll compliance across jurisdictions and streamline tax registrations while keeping your records audit-ready.
Need help navigating New York’s nexus rules? From nexus reviews to multi-state compliance, our team can help you stay ahead of the risks and challenges so you can focus on growth.
Frequently Asked Questions
1. Does hiring just one employee in New York create tax obligations for my business?
Yes. Even a single New York–based employee can trigger nexus, requiring you to register for payroll withholding, unemployment insurance, and potentially file corporate and sales tax returns.
2. What is the “Convenience of the Employer” rule, and why does it matter?
It’s a New York rule that sources wages to New York if an employee is assigned to a NY office but works elsewhere for personal convenience. This means your business may need to withhold NY tax even when the employee is physically in another state.
3. How can my business reduce the risk of noncompliance in New York?
Track where employees work, set clear office assignments in contracts, and consult with a tax advisor on registrations and filings. Tools like payroll software or a PEO can also simplify multi-state compliance.
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.