Valor Payroll Solutions
Reciprocity Agreements by State
Enterprise payroll expertise, exclusively for small businesses.
Payroll taxes are undoubtedly confusing! When it comes to state income tax, each state determines which wages are subject to the tax. Some states require that all income paid to a state resident is subject to that state’s income tax (even if the work is performed in another state) while other states require that wages paid for work performed within that state is subject to that states income tax.
To help simplify income tax, some states have created reciprocity agreements with neighboring states. States with a reciprocity agreement allow the employee to pay income tax only to the state that they live in, instead of the state that they work in. For example, an Arizona resident working in California would not have to pay California income tax because the two states have a reciprocity agreement.
As the number of remote workers continues to rise, employers should pay careful attention to how they tax employees.
Below is a list of states that have reciprocity agreements with other states.
|Arizona||California, Indiana, Oregon and Virginia|
|Illinois||Iowa, Kentucky, Michigan and Wisconsin|
|Indiana||Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin|
|Kentucky||Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin|
|Maryland||Pennsylvania, Virginia, Washington, D.C. and West Virginia|
|Michigan||Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin|
|Minnesota||Michigan and North Dakota|
|North Dakota||Minnesota and Montana|
|Ohio||Indiana, Kentucky, Michigan, Pennsylvania and West Virginia|
|Pennsylvania||Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia|
|Virginia||Kentucky, Maryland, Pennsylvania, Washington, D.C. and West Virginia|
|Washington, D.C.||Maryland and Virginia|
|West Virginia||Kentucky, Maryland, Ohio, Pennsylvania and Virginia|
|Wisconsin||Illinois, Indiana, Kentucky and Michigan|