Reciprocal tax agreements allow residents of one state to work in other states without having that state’s taxes withheld from their wages. They wouldn’t have to file non-resident state tax returns there, assuming they follow all the rules. You can simply provide your employer with a required document if you work in a state that has reciprocity with your home state.
This can greatly simplify tax time for people who live in one state but work in another, something that is relatively common for those who live near state lines. Many states have reciprocal agreements with one another.
- 1 The history of double taxation
- 2 States with reciprocal agreements
- 3 Frequently asked questions (FAQ)
- 4 What do you do if your state does not have fiscal reciprocity?
- 5 What is a state tax reciprocity form?
The history of double taxation
The reciprocity rule refers to employees who have to file two or more state tax returns: a resident return in the state where they live and non-resident returns in any other state where they might work so that they can recover the taxes withheld by error. In practice, federal law prohibits two states from taxing the same income.
The US Supreme Court ruled against double taxation in Maryland Comptroller of the Treasury v. Wynne in 2015, indicating that two or more states can no longer tax the same earnings. But it may take multiple returns to be absolutely sure you’re not being taxed twice.
For example, New York cannot tax you if you live in Connecticut but work in New York, and you pay taxes on that earned income to Connecticut. Connecticut is supposed to offer you a tax credit for the taxes you paid to the other state, or you can file a New York state tax return to claim a refund of the taxes withheld there.
You won’t pay taxes on the same money twice, even if you don’t live or work in any of the states with reciprocal agreements. You’ll just have to spend a little more time preparing multiple state returns, and you’ll have to wait for a refund for taxes unnecessarily withheld from your paychecks.
States with reciprocal agreements
The map below shows 16 orange states where non-resident workers living in reciprocal states do not have to pay taxes. Washington DC also has a reciprocity agreement with the states. Hover over each orange state to see its reciprocal agreements with other states and to find out which form nonresident workers must submit to their employers for exemption from withholding in that state.
Arizona has reciprocity with a neighboring state, California, as well as Indiana, Oregon, and Virginia. File the WEC form, the Withholding Exemption Certificate, with your employer for an exemption from withholding.
You do not have to file a tax return in Washington DC if you work there and are a resident of any other state. Submit Waiver Form D-4A, the “Certificate of Non-Residence in the District of Columbia,” to your employer. Unfortunately, this only works in reverse for two states: Maryland and Virginia. You do not have to file a non-resident return in any of these states if you live in DC but work in any of these states.
Submit the IL-W-5-NR waiver form to your employer if you work in Illinois and are a resident of Iowa, Kentucky, Michigan, or Wisconsin.
Indiana has reciprocity with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Submit the WH-47 exemption form to your Indiana employer.
Iowa has reciprocity with only one state: Illinois. Your employer does not have to withhold Iowa state income taxes from your wages if you work in Iowa and are an Illinois resident. Submit exemption form 44-016 to your employer.
Kentucky has reciprocity with seven states. You can submit waiver form 42A809 to your employer if you work here but are a resident of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin. However, Virginia residents must commute to qualify, and Ohio residents cannot be 20% or more shareholders in a chapter S corporation.
Submit the MW 507 exemption form to your employer if you work in Maryland and are a resident of Washington DC, Pennsylvania, Virginia, or West Virginia.
Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Submit the MI-W4 exemption form to your employer if you work in Michigan and live in any of these states.
Submit the MWR Exemption Form to your employer if you work in Minnesota and are a resident of Michigan or North Dakota.
Submit Form MW-4 to your employer if you work in Montana and are a North Dakota resident.
You can submit Form NJ-165 to your employer if you live in Pennsylvania and work in New Jersey.
Submit Waiver Form NDW-R to your employer if you work in North Dakota and are a resident of Minnesota or Montana.
You can submit the IT-4NR waiver form to your employer if you work in Ohio and are a resident of Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia.
Submit Waiver Form REV-419 to your employer if you work in Pennsylvania but are a resident of Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia.
Virginia has reciprocity with Washington DC, Kentucky, Maryland, Pennsylvania, and West Virginia. Submit the VA-4 exemption form to your Virginia employer if you live in one of these states and work in Virginia.
Submit the WV/IT-104 exemption form to your employer if you work in West Virginia and are a resident of Kentucky, Maryland, Ohio, Pennsylvania, or Virginia.
Submit the W-220 exemption form to your employer if you work in Wisconsin and are a resident of Illinois, Indiana, Kentucky, or Michigan.
- All of these forms are available on state websites. Your human resources department may also have the appropriate form on hand.
- Taxes for your employment status will be withheld from your wages if you don’t file, but you won’t lose the money. Your home state must provide that tax credit equal to the amount of tax you paid to your work state, even if you don’t have reciprocity with that state.
- Your other option is to simply file a nonresident return in the state where you work to claim a refund for the taxes that were withheld there.
Frequently asked questions (FAQ)
What do you do if your state does not have fiscal reciprocity?
If your state does not have a reciprocal tax agreement with the state where you work, you will have taxes withheld in your work state. At tax time, you will need to file taxes in both states to determine how much you owe or will be reimbursed in either state. When everything is settled, you still won’t be taxed twice on your income.
What is a state tax reciprocity form?
In states that have reciprocal agreements, you can file an exemption with your employer so that you don’t have taxes withheld in your work state. However, make sure your employer withholds taxes for your state of residence.