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.

StateReciprocity States
ArizonaCalifornia, Indiana, Oregon and Virginia
IllinoisIowa, Kentucky, Michigan and Wisconsin
IndianaKentucky, Michigan, Ohio, Pennsylvania and Wisconsin
KentuckyIllinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin
MarylandPennsylvania, Virginia, Washington, D.C. and West Virginia
MichiganIllinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin
MinnesotaMichigan and North Dakota
MontanaNorth Dakota
North DakotaMinnesota and Montana
OhioIndiana, Kentucky, Michigan, Pennsylvania and West Virginia
PennsylvaniaIndiana, Maryland, New Jersey, Ohio, Virginia and West Virginia
VirginiaKentucky, Maryland, Pennsylvania, Washington, D.C. and West Virginia
Washington, D.C.Maryland and Virginia
West VirginiaKentucky, Maryland, Ohio, Pennsylvania and Virginia
WisconsinIllinois, Indiana, Kentucky and Michigan

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