Reciprocity: States That Don't Tax Nonresident Workers

You can avoid having taxes withheld in these states if you live elsewhere

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Reciprocal tax agreements allow residents of one state to work in other states without having taxes for that state withheld from their pay. They would not have to file nonresident 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's relatively common among those who live near state lines. Numerous states have reciprocal agreements with others.

The History of Double Taxation

The reciprocity rule deals with employees having to file two or more state tax returns—a resident return in the state where they live and nonresident returns in any other states where they might work so they can get back any taxes that were erroneously withheld. As a practical matter, federal law prohibits two states from taxing the same income.

The U.S. Supreme Court ruled against double taxation in Comptroller of the Treasury of Maryland v. Wynne in 2015, stating that two or more states are no longer permitted to tax the same earnings. But filing multiple returns might be necessary to be absolutely sure that you're not being taxed twice.

As an example, New York can't 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 any taxes you paid to the other state, or you can file a New York state tax return to claim a refund of 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 17 orange states (including the District of Columbia) where nonresident workers who live in reciprocal states don't have to pay taxes. Hover over each orange state to see their reciprocity 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

Arizona has reciprocity with one neighboring state—California—as well as with Indiana, Oregon, and Virginia. File Form WEC, the Withholding Exemption Certificate, with your employer for an exemption from withholding. 

District of Columbia

You don't have to file a tax return in D.C. if you work in there and you're a resident of any other state at all. Submit exemption Form D-4A, the "Certificate of Nonresidence in the District of Columbia," to your employer. Unfortunately, this only works in reverse with two states: Maryland and Virginia. You don't have to file a nonresident return in either of these states if you live in D.C. but work in either of these states. 

Illinois

Submit exemption Form IL-W-5-NR to your employer if you work in Illinois and are a resident of Iowa, Kentucky, Michigan, or Wisconsin.

Indiana

Indiana has reciprocity with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Submit exemption Form WH-47 to your Indiana employer.

Iowa 

Iowa has reciprocity with only one state—Illinois. Your employer doesn't have to withhold Iowa state income taxes from your wages if you work in Iowa and you're a resident of Illinois. Submit exemption Form 44-016 to your employer.

Kentucky

Kentucky has reciprocity with seven states. You can submit exemption Form 42A809 to your employer if you work here but you're a resident of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin. Residents of Virginia must commute daily to qualify, however, and residents of Ohio can't be shareholders of 20% or more in an S chapter corporation.

Maryland

Submit exemption Form 42A809 to your employer if you work in Maryland and are a resident of the District of Columbia, Pennsylvania, Virginia, or West Virginia.

Michigan

Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Submit exemption Form MI-W4 to your employer if you work in Michigan and live in any of these states.

Minnesota

Submit exemption Form MWR to your employer if you work in Minnesota and are a resident of Michigan or North Dakota.

Montana 

Submit exemption MT-R to your employer if you work in Montana and are a resident of North Dakota.

New Jersey

New Jersey has historically had reciprocity with Pennsylvania, but Governor Chris Christie terminated the agreement effective January 1, 2017. You would have to have filed a nonresident return in New Jersey beginning in 2017 and paid taxes there if you work in the state. Fortunately, Christie reversed course when a hue and cry rose from residents and politicians alike.

Workers can continue to submit Form NJ-165 to your employer if you live in Pennsylvania and work in New Jersey.

North Dakota

Submit exemption Form NDW-R to your employer if you work in North Dakota and are a resident of Minnesota or Montana.

Ohio

You can submit exemption Form IT-4NR to your employer if you work in Ohio and are a resident of Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia.

Pennsylvania

Submit exemption 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

Virginia has reciprocity with the District of Columbia, Kentucky, Maryland, Pennsylvania, and West Virginia. Submit exemption ​Form VA-4 to your Virginia employer if you live in one of these states and work in Virginia.

West Virginia

Submit exemption Form WV/IT-104R to your employer if you work in West Virginia and are a resident of Kentucky, Maryland, Ohio, Pennsylvania, or Virginia.

Wisconsin

Submit exemption Form W-220 to your employer if you work in Wisconsin and are a resident of Illinois, Indiana, Kentucky, or Michigan. 

Key Takeaways

  • All these forms are available on their states' websites, and Illinois even offers one that's interactive—you can complete it online, then simply download it or print it out. Your human resources department mostly likely has the appropriate form on hand as well, particularly if you work for a large business that's situated near a state line.
  • Taxes for your work state will be withheld from your pay if you fail to submit the form, but you won't lose the money, thanks to the U.S. Supreme Court. Your home state should provide that tax credit equal to the amount of tax you paid to your work state, even if it doesn't have reciprocity with that state.
  • Your other option is to simply file a non-resident return in the state where you work to claim a refund for the taxes that were withheld there.

Article Sources

  1. Supreme Court of the United States. "13-485 Comptroller of Treasury of MD. v. Wynne (05/18/2015)." Accessed Sept. 18, 2020.

  2. Arizona Department of Revenue. "Withholding Exceptions." Accessed Sept. 18, 2020.

  3. DC.gov Office of Tax and Revenue. "Individual Income Tax Special Circumstances FAQs." Accessed Sept. 18, 2020.

  4. Illinois Revenue. "What If I Live or Work in a State That Has a Reciprocal Agreement With Illinois?" Accessed Sept. 18, 2020.

  5. State of Indiana Department of Revenue. "Information Bulletin #28 Income Tax November 2016." Accessed Sept. 18, 2020.

  6. Iowa Department of Revenue. "Iowa - Illinois Reciprocal Agreement." Accessed Sept. 21, 2020, 2020.

  7. Kentucky Department of Revenue. "103 KAR 17:140. Individual Income Tax - Reciprocity - Nonresidents." Accessed Sept. 18, 2020.

  8. Comptroller of Maryland. "Administrative Release No. 37: Subject: Domicile and Residency." Accessed Sept. 21, 2020.

  9. Michigan Department of Treasury. "Are My Wages Earned in Another State Taxable in Michigan if I am a Michigan Resident?" Accessed Sept. 18, 2020.

  10. Minnesota Department of Revenue. "Reciprocity Exemption/Affidavit of Residency for Tax Year 2019." Accessed Sept. 18, 2020.

  11. Montana Department of Revenue. "North Dakota Reciprocity Agreement." Accessed Sept. 21, 2020.

  12. WHYY.org. "Christie Reverses Position, Will Keep Pa.-N.J. Reciprocal Tax Agreement [Updated]." Accessed Sept. 21, 2020.

  13. State of New Jersey Division of Taxation. "NJ Income Tax – PA/NJ Reciprocal Income Tax Agreement." Accessed Sept. 18, 2020.

  14. North Dakota Office of State Tax Commissioner. "NDW-R." Accessed Sept. 18, 2020.

  15. Ohio Department of Taxation. "Employee’s Statement of Residency in a Reciprocity State." Accessed Sept. 18, 2020.

  16. Pennsylvania Department of Revenue. "REV-419 Employee’s Nonwithholding Application Certificate." Accessed Sept. 18, 2020.

  17. Virginia Tax. "Reciprocity." Accessed Sept. 18, 2020.

  18. West Virginia State Tax Department. "West Virginia Employee's Withholding Exemption Certificate Form WV/IT-104." Accessed Sept. 18, 2020.

  19. State of Wisconsin Department of Revenue. "Individual Income Tax Working in Another State." Accessed Sept. 18, 2020.