State Tax Reciprocity Agreements: What You Should Know

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Did you know that about 5.8 million Americans worked outside their state of residence before the pandemic?

While most people have switched to remote jobs post-pandemic, there are still people who have to cross-border commutes for work. This can be a nightmare during tax season.

Luckily state tax reciprocity agreements can come to your rescue. If you work for a company in another state, below is a comprehensive guide about state reciprocity agreements to help you. Keep reading to learn more.

What are State Tax Reciprocity Agreements?

State tax reciprocity agreements are pacts between states that allow for tax exemptions for workers who live in one state but work in another. This way you can only file and pay taxes to your state of residency instead of both states.

If you work in a state with a business payroll reciprocity agreement, you need to file an exemption tax form with your employer. As a result, your employer won’t have to withhold taxes in your work state. Ensure they are withholding and remitting taxes to the state of your residency.

States with Reciprocity Agreements

Not all states have reciprocity agreements. But here are some states that have a pact with at least one other state:

Arizona

It has reciprocity agreements with Virginia, California, Oregon, and Indiana. Ensure you file a WEC form with your employer.

Illinois

It has a pact with Michigan, Iowa, Wisconsin, and Kentucky. File the IL-W-5-NR.

Indiana

The state has reciprocity agreements with Ohio, Kentucky, Wisconsin, Michigan, and Pennsylvania. You must file the WH-47 form.

Iowa

With a 44-016 form to file, Iowa only has a pact with Illinois. Tax residents of Illinois wanting Illinois instead of Iowa income tax withheld must submit to payroll an IA Form 44-016.

Kentucky

It has reciprocity agreements with:

  • Michigan
  • Indiana
  • Ohio
  • Illinois
  • Virginia
  • West Virginia

But the pacts with Virginia and Ohio are conditional. Ensure you file the 42A809 form.

Maryland

It has a reciprocal tax agreement with Pennsylvania, Washington D.C., Virginia, and West Virginia. File the MW507 form.

Michigan

It has a pact with Indiana, Illinois, Wisconsin, Kentucky, Ohio, and Minnesota. You will have to file the MI-W4 form.

New Jersey

New Jersey only has a pact with Pennsylvania. Make sure you fill out the form for employees—the NJ-165.

Ohio

Ohio offers IT 4NR forms for employees. It has a pact with West Virginia, Michigan, Pennsylvania, Indiana, Kentucky, and Maryland.

Pennsylvania

It has reciprocity agreements with Maryland, Ohio, New Jersey, Indiana, Virginia, and West Virginia. It offers the REV-419 form you have to fill out.

Virginia

The state has a pact with Maryland, Pennsylvania, West Virginia, Washington, D.C., and Kentucky. It’s eligible with VA-4 employee forms.

Washington, D.C.

It only has income taxes reciprocity agreements with Maryland and Virginia. You need to file your D-4A forms for this.

West Virginia

The state has a pact with Ohio, Maryland, Kentucky, Virginia, and Pennsylvania. You have to fill out the WV/IT-104 forms.

Wisconsin

With a W-220 form to fill, Wisconsin has a state taxes pact with Michigan, Illinois, Kentucky, and Indiana.

How to File a Tax Exemption Form

Without the tax exemption form, you may face double taxation—in the state where you work and the state where you reside. While these forms vary from state to state, here are the basic steps for filling them out.

Step 1: Get the Right Form

Contact your employer or the relevant state tax agency to obtain the correct tax exemption form that you need to fill out.

Step 2: Provide Personal Information

Fill out the personal information section with your name, address, and Social Security number.

Step 3: Specify Your State of Residency

Clearly indicate your state of residency and provide proof of residency using your driver’s license or utility bill. Once you’re done sign and date the form to verify that the information you’ve provided is accurate.

Step 4: Submit the Form

Submit the form to your employer. They will use the information given to correctly withhold and remit taxes on your behalf.

Avoid Double Taxation: Outsource Your Payroll

State tax reciprocity agreements can help you avoid paying double taxes. To learn more about your tax agreement, contact us today.

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Christina Hageny

President - Valor Payroll Solutions

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Christina Hageny

President - Valor Payroll Solutions

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