Employee paychecks are subject to some quite complicated regulations, particularly when it comes to what employers may, may not, and must withhold from employee pay. Perhaps the most well-known form of withholding is for Social Security and Medicare, commonly known as payroll taxes, and federal income tax. States that maintain their own income tax may require employers to withhold that as well. New Jersey is among those states. When employment relationships cross state lines, withholding requirements can get even more confusing. New Jersey employment laws give workers some remedies for unlawful paycheck deductions, but this does not necessarily cover errors involving tax withholding. A new law passed by the state legislature addresses New Jersey income tax withholding for out-of-state remote workers based on a rule known as the “convenience of the employer.”
New Jersey employers may withhold money from employee paychecks when required to do so by state or federal law, such as for federal income tax. They may withhold funds from paychecks for any other purpose only when the employee has authorized it in writing. Authorization can come from an individual employee or a collective bargaining agreement with an authorized representative.
Unauthorized deductions from employee paychecks can result in penalties that include fines and jail time. Employees may also bring a civil lawsuit to recover the amounts unlawfully withheld, plus three times that amount as liquidated damages, court costs, and attorney’s fees. This provision of New Jersey law does not apply to tax withholding errors made by an employer. An employee whose employer fails to withhold the correct amount of income tax will be liable to pay the correct amount. It might, however, be possible to raise the employer’s error as a defense to the assessment of late payment penalties.
Not every state collects income tax for itself, but those that do must determine what to do about out-of-state employees of New Jersey employers. The massive increase in remote work over the past few years has made this a pressing issue for state tax officials. Wages or salaries that can be sourced to a New Jersey location are subject to state income tax. The question, which the state legislature recently answered, is how to source that income for out-of-state workers.
Some states use the “Convenience of the Employer Rule” to determine whether to source the income to an employer’s location. An out-of-state employee’s pay will be sourced to their employer’s in-state location if they work remotely for their own convenience rather than the employer’s necessity.
New Jersey does not have a Convenience of the Employer Rule that applies to workers in all other states. Instead, a law enacted earlier this year applies the Convenience of the Employer Rule if a remote worker’s state applies the rule to nonresidents. According to the New Jersey Department of the Treasury, this currently covers individuals in Delaware, Nebraska, and New York who work remotely for New Jersey employers.
If you believe that your employer has violated your rights under state or federal law, you need an experienced advocate who can fight for you. The employment lawyers at the Resnick Law Group represent New Jersey and New York workers in a wide range of claims involving alleged unlawful employment practices. To schedule a confidential consultation with a member of our team, please contact us today online, at 973-781-1204, or at 646-867-7997.