Reciprocity: States That Do Not Tax Nonresident Workers
You can avoid having taxes withheld in these states
Reciprocal agreements between states allow residents of one state to work in other states without having to file nonresident tax returns there. This can greatly simplify tax time for people who live in one state but work in another, which is relatively common among those who live near state lines. Several states have reciprocal agreements with others.
It's Mostly About Tax Returns These Days
The reciprocity rule deals predominantly with employees having to file two or more tax returns: resident returns in the states where they live and nonresident returns when they work anywhere else.
The U.S. Supreme Court ruled against double taxation in 2015, stating that two or more states are no longer permitted to tax the same earnings. If you live in New York but work in Connecticut and pay taxes on that income in Connecticut, New York cannot tax you on it as well. New York must offer you a credit for taxes you paid elsewhere.
So even if you don't live or work in one of the following states with reciprocal agreements, you won't pay taxes on the some money twice. You'll have to spend a little more time preparing multiple state returns, however. If you do work in any of these states, you can simply provide your employer with the required document to avoid having state taxes withheld from your pay there—which, of course, would necessitate filing a nonresident return.
Arizona has reciprocity with one neighboring state—California—as well as Indiana, Oregon, and Virginia. File Form WEC, the Withholding Exemption Certificate, with your employer.
Arkansas has reciprocity with only one city: Texarkana, Texas. File Form AR-4EC(TX) with your Texarkana employer.
District of Columbia
If you work in D.C. and are a resident of any other state, you do not have to file a tax return in D.C. You can submit exemption Form D-4A, a Certificate of Nonresidence, to your employer.
But this only works in reverse with two states: Maryland and Virginia. If you live in D.C. but work in either of these states, you do not have to file a nonresident return there.
If you work in Illinois and are a resident of Iowa, Kentucky, Michigan, or Wisconsin, you can submit exemption Form IL-W-5-NR to your employer.
Indiana has reciprocity with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Submit exemption Form WH-47 to your Indiana employer.
If you work in Iowa and are a resident of Illinois, your employer does not have to withhold Iowa income taxes from your wages. You should submit exemption Form 44-016 to your employer.
Kentucky has reciprocity with seven states. If you work here but you are a resident of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin, you can 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, submit exemption Form MW 507 to your employer.
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.
If you work in Minnesota and are a resident of Michigan or North Dakota, submit exemption Form MWR to your employer.
If you work in Montana and are a resident of North Dakota, submit exemption Form NR-2 to your employer.
New Jersey has historically had reciprocity with Pennsylvania, but Governor Chris Christie terminated the agreement on September 2, 2016. Now you'll have to file a nonresident return in New Jersey and pay taxes there if you work in the state but are a resident of Pennsylvania. However, Pennsylvania must offer you a full credit for these taxes under the 2015 Supreme Court ruling.
If you work in North Dakota and are a resident of Minnesota or Montana, submit exemption Form NDW-R to your employer.
If you work in Ohio and are a resident of Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia, submit exemption Form IT-4NR to your employer.
Regardless of New Jersey's 2016 change of heart, Pennsylvania continues to offer this tax break to those who work within state lines but live in New Jersey. So if you work in Pennsylvania but are a resident of Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia, submit exemption Form REV-420 to your employer. But keep an eye on the New Jersey-Pennsylvania situation from year to year to be sure because these agreements can change.
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.
If you work in West Virginia and are a resident of Kentucky, Maryland, Ohio, Pennsylvania, or Virginia, submit exemption Form WV/IT-104R to your employer.
If you work in Wisconsin and are a resident of Illinois, Indiana, Kentucky, or Michigan, submit exemption Form W-220 to your employer.