What Qualifies as a Bona Fide Employer Office?
Defining your remote workspace as an official employer office has significant tax implications. Learn the factors and evidence required for this distinction.
A bona fide employer office is a designation for a workspace, often a home office, that state tax authorities recognize as a legitimate place of business for the employer. This classification is important for determining state income tax liability for employees who live in one state but work for a company in another, as meeting the criteria can change which state has the right to tax that income. The distinction has become more significant as remote and hybrid work arrangements have grown more common.
The Convenience of the Employer Rule
The need to define a bona fide employer office arises from the “convenience of the employer” rule. Seven states—Alabama, Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania—use this rule to determine the source of a nonresident employee’s income. Some states, like Connecticut and New Jersey, apply the rule on a reciprocal basis, meaning it is only enforced if the employee’s home state has a similar law.
Normally, you pay income tax to the state where you live and, if different, where you physically perform your work. The convenience rule alters this standard. Under this doctrine, if you work from an out-of-state home for your own convenience rather than your employer’s necessity, your wages are treated as if you earned them at your employer’s office. This can lead to double taxation. For example, an employee working remotely from a state without this rule for a company in New York would still owe New York income tax. The main exception is when the remote work arrangement is a matter of employer necessity, which is what makes the bona fide employer office test important.
Core Requirements of a Bona Fide Employer Office
Tax authorities rely on a detailed “facts and circumstances” test to determine if a workspace qualifies as a bona fide employer office. Guidance from states like New York provides a framework that is often referenced. To meet this standard, the office must satisfy either a single primary factor or a combination of multiple secondary and other factors.
The primary factor is met if the employee’s duties require the use of specialized facilities or equipment that are not available at the employer’s regular business location but are available at or near the employee’s home. This is a high standard that applies in specific situations, such as needing proximity to a unique testing ground that the employer cannot replicate.
If this primary factor is not met, the analysis shifts to a collection of other criteria. An employee may need to meet at least four of six secondary factors and three of ten other factors for their home office to qualify. Secondary factors examine whether the home office is a condition of employment, if the employer has a genuine business purpose for the office’s location, and if the employee performs core job duties or regularly meets with clients there. Other factors include whether the employer reimburses home office expenses, maintains a separate phone line, or includes the home office address on business cards and letterhead.
Applying the Standard to a Home Office
When applying these requirements to a home office, it becomes clear that the standard is exceptionally high. A simple desk and computer in a spare bedroom used for daily tasks will almost certainly fail to qualify, as tax authorities look for objective evidence that the employer requires the office to exist in that specific location. For a home office to be considered a bona fide employer office, it must function like a satellite location of the company.
An example would be a regional salesperson required by their employer to maintain a dedicated office space in their home to meet with clients in that territory. This office might have a separate entrance, signage, and a business phone line paid for by the employer, and the employee would have records of regular client meetings held there. This scenario contrasts sharply with an employee who performs the same job from home that could otherwise be done at the employer’s main office.
It is also important to distinguish this state-level determination from the federal home office deduction. The federal deduction has its own set of rules focused on whether a portion of the home is used exclusively and regularly for business. The state-level test is more stringent because it centers on the employer’s necessity, not just the employee’s business use of the space.
Substantiating Your Claim
Should a tax authority question your income sourcing, the burden of proof falls on you to demonstrate that your home office is a bona fide employer office. Meticulous record-keeping is required to substantiate such a claim, and you must be prepared to provide clear documentation that supports how your office meets the facts and circumstances test.
Helpful documents include:
- A written employment agreement or corporate policy that explicitly requires you to work from a specific remote location as a condition of your job.
- Financial records, such as expense reports and reimbursement records showing the employer paid for office-specific costs like a dedicated business phone line, internet service, or supplies.
- Proof that the home office address is listed on business cards, company websites, or other official materials.
- Photographic evidence of the workspace showing a dedicated and separate area used exclusively for business.
- Detailed logs of client meetings held at the home office, including dates, attendees, and the purpose of each meeting.