Convenience of the Employer Sourcing Rule Enacted for Gross Income Tax:
A new law was signed July 21, 2023, that establishes a “convenience of the employer test” (convenience rule) for nonresident income sourcing. Under the convenience rule, a nonresident taxpayer’s employee compensation from a New Jersey employer for the performance of personal services is sourced to the employer’s location (New Jersey) if the employee is working from an out-of-state location for their own convenience rather than for the necessity of their employer. The new law is retroactive to January 1, 2023. Affected taxpayers must begin withholdings and/or make estimated payments for Tax Year 2023 as soon as possible. Employers should consider making adjustments to withholdings as an accommodation to employees, so that they are not underpaid. The Division will not impose penalty and interest as long as the taxpayer begins complying with the new law as of September 15, 2023.