This past year we received over 850 state tax questions related to employees living in one state, but working in another. The big concern is that they will have to file and pay taxes in both states. Fortunately, some states have reciprocal agreements in place to alleviate this tax burden.
What are reciprocal agreements?
Reciprocal agreements allow residents living one state, but working in another state to only pay taxes in their state of residency. Thus, the employee will only have to file one state tax return and taxes will only be withheld from their home state. There are a number of states that have reciprocal agreements in place with neighboring states and typically require the employee to file a withholding exemption form with their employer in the state in which they work. Before we go through the states that have agreements, it’s important to note the many states that do not have agreements in place. They are as follows: Alabama, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Kansas, Louisiana, Maine, Massachusetts, Mississippi, Missouri, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Oregon, Puerto Rico, Rhode Island, South Carolina, Utah, and Vermont. In this instance, you may be taxed on income from both states and will need to file for a tax credit with your state tax return in your home state.
Arizona Reciprocal Withholding Tax Agreements
If you work in Arizona and live in California, the District of Columbia, Indiana, Oregon, or Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form WEC, Withholding Exemption Certificate.
Arkansas Reciprocal Withholding Tax Agreement
If you work in Arkansas and live in Texarkana, Texas, you are exempt from withholding tax, you can request a withholding tax exemption by filing the following form with your employer: Form AR-4EC(TX).
District of Columbia Reciprocal Withholding Tax Agreements
If you work in Washington D.C. and live in any other state, you can request a withholding tax exemption by filing the following form with your employer: Form D-4A.
Illinois Reciprocal Withholding Tax Agreements
If you work in Illinois and live in Iowa, Kentucky, Michigan, and Wisconsin, you can request a withholding tax exemption by filing the following form with your employer: Form IL-W-5NR.
Indiana Reciprocal Withholding Tax Agreements
If you work in Indiana and live in Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin, you can request a withholding tax exemption by filing the following form with your employer: Form WH-47.
Iowa Reciprocal Withholding Tax Agreement
If you work in Iowa and live in Illinois, you can request a withholding tax exemption by filing the following form with your employer: Form 44-016.
Kentucky Reciprocal Withholding Tax Agreements
If you work in Kentucky and live in Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin, you can request a withholding tax exemption by filing the following form with your employer: Form 42A809.
Maryland Reciprocal Withholding Tax Agreements
If you work in Maryland and live in District of Columbia, Pennsylvania, Virginia, or West Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form MW 507.
Michigan Reciprocal Withholding Tax Agreements
If you work in Michigan and live in Illinois, Indiana, Kentucky, Minnesota, Ohio, or Wisconsin, you can request a withholding tax exemption by filing the following form with your employer: Form MI-W4.
Minnesota Reciprocal Withholding Tax Agreements
If you work in Minnesota and live in Michigan or North Dakota, you can request a withholding tax exemption by filing the following form with your employer: Form MW-R.
Montana Reciprocal Withholding Tax Agreement
If you work in Montana and live in North Dakota, you can request a withholding tax exemption by filing the following form with your employer: Form NR-2.
New Jersey Reciprocal Withholding Tax Agreement
If you work in New Jersey and live in Pennsylvania, you can request a withholding tax exemption by filing the following form with your employer: Form NJ-165.
North Dakota Reciprocal Withholding Tax Agreements
If you work in North Dakota and live in Minnesota or Montana, you can request a withholding tax exemption by filing the following form with your employer: Form NDW-R.
Ohio Reciprocal Withholding Tax Agreements
If you work in Ohio and live in Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form IT-4NR.
Pennsylvania Reciprocal Withholding Tax Agreements
If you work in Pennsylvania and live in Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form REV-420.
Virginia Reciprocal Withholding Tax Agreements
If you work in Virginia and live in District of Columbia, Kentucky, Maryland, Pennsylvania, or West Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form VA-4.
West Virginia Reciprocal Withholding Tax Agreements
If you work in West Virginia and live in Kentucky, Maryland, Ohio, Pennsylvania, or Virginia, you can request a withholding tax exemption by filing the following form with your employer: Form WV/IT-104R.
Wisconsin Reciprocal Withholding Tax Agreements
If you work in Wisconsin and live in Illinois, Indiana, Kentucky, or Michigan, you can request a withholding tax exemption by filing the following form with your employer: Form W-220.
More questions? Browse answers or ask tax questions online.
Related Articles
->Is Your Business Subject To Sales Tax In Other States?
->Which States Are The Least Tax Friendly?
->Do You Have To Pay An Employee On Leave?
->Why Your Severance Pay May Not Be Fully Taxable
