🏠 The Hidden Tax Traps of Hybrid and Remote Work for Executives

☕ Good morning SenseMakers!

The pandemic changed how executives work, and that shift isn't reversing. According to recent data, over 60% of senior leaders now work in hybrid or fully remote arrangements. What started as a temporary workaround became a permanent feature of executive life. 

You can run a $50M business from a home office in Austin, lead a revenue team from a beach house in Florida, or oversee operations from an apartment in Portugal.

But here's what most leaders missed in the rush to "work from anywhere": the tax code didn't get the memo.

Where you sit when you work, and where your employer sits on paper, can quietly reshape your state and local taxes, your equity income, and your filing duties. The rules are complex, they vary wildly by state, and they're actively enforced in 2025.

Meet Jason, a chief revenue officer who made what seemed like a perfect move in 2023. He relocated to Florida for the lifestyle and the no-state-income-tax advantage. His company kept him on the New York payroll with an office assignment in Manhattan, but he worked mostly from home in Miami.

Fast forward to April 2024. A surprise tax bill arrived from New York, claiming he owed state taxes on his full salary because of something called the "convenience-of-the-employer" rule. To make matters worse, he discovered he'd been overpaying Philadelphia wage tax for days he was required to work outside the city but never filed for a refund. The damage? Over $47,000 in taxes he thought he'd avoided, plus missed refunds worth another $8,200.

Today, we're walking through the three biggest traps that hit executives and equity-compensated leaders, what changed for 2025, and a simple action plan to stop overpaying before it costs you.

⚠️ The Three Traps That Hit Executives Most

Trap #1: Convenience-of-the-Employer Rules

This is the silent killer for remote executives, and New York has wielded it for years.

Here's how it works: some states treat your home office days as if they were worked in the employer's state unless your employer requires you to be at home or you meet a strict "bona fide employer office" test.

New York's rule is the most notorious. If you're assigned to a New York office but work from home in Florida, Texas, or anywhere else for your own convenience, New York can tax 100% of your wages as New York-source income. The fact that you never set foot in the state doesn't matter.

New Jersey adopted a retaliatory version of this rule in 2023, specifically targeting residents who work for employers in states that apply convenience rules. Pennsylvania uses a similar "requirement-of-employment" standard for sourcing wages.

The planning lever: Get your assignment location confirmed in writing. If you're truly required to work remotely (not just allowed to), document it. One letter from your employer can be the difference between a clean tax return and a five-figure surprise bill.

Trap #2: Local Wage Taxes and City Rules

State taxes are just the beginning. Cities add another layer.

Philadelphia, for example, does not impose its wage tax on nonresidents for days they are required to work outside the city. But if you choose to work from home for personal convenience, the city still taxes those days. That difference creates frequent refund opportunities for executives on hybrid schedules who haven't been tracking their required out-of-city workdays.

Take Maria, a VP of Operations living in suburban New Jersey but working for a Philadelphia-based company. She's been to the office maybe 40 days this year, with the rest remote. Her employer withheld Philadelphia wage tax on her entire salary. By documenting the days she was required to work from home or travel to client sites outside Philadelphia, she filed for a refund worth over $6,000.

Trap #3: Equity Income Allocation Across States

This is where it gets expensive fast, especially for executives with large equity packages.

Stock option exercises and RSU vests are sourced across the states where you worked during the grant-to-exercise period (for options) or grant-to-vest period (for RSUs). California and New York both follow day-count allocation, which means moving states before a vest or exercise does not move the entire tax bill with you.

Consider Sarah, a tech executive who received RSUs while living in California, then relocated to Texas in early 2024. When her RSUs vested in October 2024, she assumed Texas's no-income-tax status would shelter the entire gain. Wrong. California used a day-count formula to allocate a portion of the vest back to California based on the days she worked there during the grant-to-vest period.

On a $400,000 RSU vest with three years between grant and vest, and two years of California service, California taxed roughly $267,000 of the income. At California's top rate, that's over $35,000 in unexpected state tax.

📅 What Changed for 2025

Three updates worth flagging for your planning:

Nebraska convenience rule changes: Nebraska has relaxed parts of its convenience rule and added safe harbors effective for tax years beginning in 2025.

Washington capital gains excise tax: Washington added a tier to its capital gains excise tax for residents, with a higher rate above $1 million in gains. If you're a Washington resident sitting on large equity positions, you need to model this before you sell.

Foreign earned income exclusion increase: The exclusion rises to $130,000 for 2025 for qualifying international remote workers. If you're running your business from abroad, this creates meaningful federal tax savings, but you still need to navigate state residency rules carefully.

🗺️ State-by-State Playbook for the Largest Markets

Here's your quick-reference guide for the states that matter most to high-earning executives:

💼 Equity Compensation Quick Guide

RSUs: Vesting creates wage income allocated by workdays between grant and vest. Moving states partway through only shifts the portion tied to future workdays.

NSOs: Exercise triggers wage income allocated by workdays between grant and exercise. Multi-state service means multi-state taxation unless you document and claim credits correctly.

ISOs: No wage income if you meet holding periods, but AMT can apply. Washington residents face state capital gains excise on later sales.

Planning move: Set your equity event calendar against your travel log. If a large vest is coming, confirm where you'll be working during the measurement period and whether your employer will allocate correctly.

🌍 Quick Note for Leaders Relocating Abroad

The foreign earned income exclusion is $130,000 for 2025 if you meet residence or physical presence tests. You must file Form 2555 to claim it. But here's the catch: a high-tax state like California may still consider you a resident if you don't break ties under its guidelines. You need to sever domicile intentionally, not just leave the state.

✅ Your Action Plan Before Year-End

1. Confirm your assignment location in writing. If you're New York-assigned, the convenience rule likely applies unless your employer requires home work.
   

2. Track every workday by location. Keep it with your equity grant records. This is your audit defense and refund evidence.
   

3. Philadelphia-area readers: Adjust wage tax withholding for required out-of-city days. Consider a refund claim for prior years.
   

4. Pennsylvania residents: Check whether a resident credit is allowed for wages taxed by another state. PA limits credits on income it considers PA-source.
   

5. California movers: Review residency ties and do a residency file cleanup if you intend to change domicile.
   

6. Washington residents with large equity sales: Model the capital gains excise at the new 2025 thresholds before you sell.
   

7. Home office expenses: Reimburse, don't deduct. Employee deductions remain suspended federally, so use an accountable plan.
   

🧠 Making Sense of Hybrid and Remote Work Tax Traps

The freedom to work from anywhere is one of the best perks of modern executive life. But that freedom comes with a tax cost if you're not paying attention.

The rules we've walked through today aren't theoretical. They're actively enforced, and states with convenience rules are getting more aggressive, not less. New York, New Jersey, and Pennsylvania have all tightened enforcement in recent years.

Here's the bigger picture: taxes are one of the largest line items in your financial life, often bigger than your mortgage, your kids' education, or your retirement contributions. And unlike those expenses, taxes don't directly fund your version of a rich life.

The goal isn't to avoid taxes illegally or play games with residency. It's to structure your work, your equity events, and your state ties so you're only paying what you legally owe and not a dollar more. That might mean timing a stock option exercise around a move, documenting your required work-from-home days to claim a city wage tax refund, or simply keeping a workday log so your CPA can allocate income correctly.

Every dollar you keep through smart tax planning is a dollar you can deploy toward the life you actually want. The vacation home. The sabbatical. The charitable foundation. Early retirement on your terms.

If you're working remotely, managing equity compensation, or splitting time across state lines, this isn't optional. It's foundational.

Need help mapping your specific situation? Send me your two primary work locations and one upcoming equity event. I'll map your filing and sourcing risk into a one-page action plan.

As always, I hope this helps you to Prioritize Your Version of a Rich Life.

Until next week!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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