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State tax reciprocity agreements in the United States
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Preston Wickersham
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In the United States, federal taxes apply to workers no matter where they live. State taxes, however, can vary — especially for workers who live and work in different states. This guide provides information on how state tax reciprocity agreements work and which states currently have agreements in place.
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What is a state tax reciprocity agreement?
For states with reciprocity agreements, workers only pay taxes in the state where they live, not the state where they perform the work. As an example, a person who lives in Arizona but works in California would not have to pay state taxes in California, because the two states have a tax reciprocity agreement.
Employees only have to file a tax return in the state where they will be taxed. They do not have to file nonresident tax returns in states where they work, even to mark their income as exempt. The only time an employee is required to file a state income tax return in another state is when that state does not have a reciprocity agreement. Employees should, however, provide their employers with the appropriate tax form to avoid state taxes being inappropriately withheld.
For employers, state tax reciprocity agreements make withholding simple. The company only needs to withhold state and local taxes in the state where the employee lives.
Workers who work in states without reciprocity agreements do not have to pay all the taxes for both states. Federal law in the United States prohibits multiple states from charging state tax on the same income. However, people who work in states without reciprocity agreements are required to file state income tax returns in both (or multiple) states.
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States with reciprocity agreements
The following states have state tax reciprocity agreements with at least one other state:
Arizona
Arizona has state tax reciprocity agreements with California, Indiana, Oregon, and Virginia.
Form for employees: WEC
Illinois
Illinois has state tax reciprocity agreements with Iowa, Kentucky, Michigan, and Wisconsin.
Form for employees: IL-W-5-NR
Indiana
Indiana has state tax reciprocity agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin.
Form for employees: WH-47
Iowa
Iowa has a state tax reciprocity agreement with one state: Illinois.
Form for employees: 44-016
Kentucky
Kentucky has state tax reciprocity agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. However, Virginia and Ohio’s agreements are conditional. Virginia residents are only eligible for the reciprocity agreement if they commute to Kentucky for all regular workdays. Ohio residents only qualify if they do not own 20% or more equity in an S corporation.
Form for employees: 42A809
Maryland
Maryland has state tax reciprocity agreements with Pennsylvania, Virginia, West Virginia, and Washington, D.C.
Form for employees: MW507
Michigan
Michigan has state tax reciprocity agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin.
Form for employees: MI-W4
Minnesota
Minnesota has state tax reciprocity agreements with Michigan and North Dakota.
Form for employees: MWR
Montana
Montana has a state tax reciprocity agreement with one state: North Dakota.
Form for employees: MW-4
New Jersey
New Jersey has a state tax reciprocity agreement with one state: Pennsylvania.
Form for employees: NJ-165
North Dakota
North Dakota has state tax reciprocity agreements with Minnesota and Montana.
Form for employees: NDW-R
Ohio
Ohio has state tax reciprocity agreements with Indiana, Kentucky, Michigan, Maryland, Pennsylvania, and West Virginia.
Form for employees: IT 4NR
Pennsylvania
Pennsylvania has state tax reciprocity agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia.
Form for employees: REV-419
Virginia
Virginia has state tax reciprocity agreements with Kentucky, Maryland, Pennsylvania, Washington, D.C., and West Virginia.
Form for employees: VA-4
Washington, D.C.
Washington, D.C. has state tax reciprocity agreements with Maryland and Virginia.
Form for employees: D-4A
West Virginia
West Virginia has state tax reciprocity agreements with Kentucky, Maryland, Ohio, Pennsylvania, and Virginia.
Form for employees: WV/IT-104
Wisconsin
Wisconsin has state tax reciprocity agreements with Illinois, Indiana, Kentucky, and Michigan.
Form for employees: W-220
States with no income taxes
Nine states do not have state taxes. Employees who work in those states but live in another state do not need to file any documentation for working outside their home state, but they do need to file and pay state taxes in the state where they live. The states with no state income taxes are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
What do companies need to know?
Companies with employees who work in states with reciprocity agreements should make sure their employees submit the proper form for their state, as provided in the last section. Companies are required to withhold state taxes for each employee, so it’s important to to withhold the right amount. This is also true for international employers of workers in the United States.
States without reciprocity agreements may still have options for employers and their workers, including income tax credits. Be sure to evaluate your tax situation carefully to ensure both company and employee pay the right amount.
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