Telecommuters and the State Personal Income Tax
Brian D. Tauber
Posted Friday, May 16, 2014

The current process for nonresident withholding and for determining a multistate worker’s out-of-state personal income tax liability has been a source of confusion for employers and employees alike. The Mobile Workforce State Income Tax Simplification Act aims to simplify tax compliance by establishing a uniform standard for determining whether an employee who works in multiple states is subject to personal income tax in a given state. However, the Act may not account for some potential loopholes, including application of the so-called “convenience of the employer rule,” which some states use to determine the state in which an employee’s wages are earned.

This paper considers the various arguments for and against the convenience of the employer rule.  By weighing the benefits of amending the Act to abolish the convenience of the employer rule against the harm this would cause states that observe the rule, this paper concludes that Congress should modify the Act to do away with the convenience of the employer rule.  Revising the Act to eliminate the convenience of the employer rule would avoid unfair results that the rule often generates, negate the rule’s tendency to discourage telecommuting, and simplify tax compliance for multistate employees and their employers.