Tax Reciprocity: How to File Taxes When You Live and Work in Different States
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Do you live in one state and work in another? Don’t sweat it — this is fairly common, and your taxes don’t have to be complicated thanks to reciprocal tax agreements (reciprocity).
What does tax reciprocity mean?
Reciprocity agreements between two states allow you to live in one state and work in nearby state while only paying taxes to the state in which you live. This means the state where you work generally should not withhold any state or local taxes from your paychecks.
For example, if you live in Wisconsin and work in Illinois, you are only responsible for Wisconsin taxes and you can file an exemption from withholding Illinois state taxes.
What is the purpose of reciprocal agreements?
By claiming an exemption for the nonresident state you work in, you only need to file one state tax return (for the state in which you live).
If you don’t claim an exemption in the neighboring state where you work, you’ll have to file a tax return in both states.
If the state you live in does not have a tax reciprocity agreement, you will not necessarily be taxed twice. You will generally need to file a tax return for both states and may be able to claim a tax credit for taxes paid in your work state.
How do I make sure my wages are exempt from withholding in a reciprocal agreement state?
You will typically need to fill out a withholding exemption certificate and give it to your employer to keep on file for you.
We list the exemption forms you’ll need for each reciprocal state in a table down below.
Do all states have reciprocity?
No, not all states have reciprocal tax agreements, even if they share a border. If your state does not offer reciprocity, you will report all income received in both states on your home state’s tax return. Your home state may then allow you to claim a credit for the net income tax paid in your work state.
On the flip side, if you work in a non-reciprocal state with a lower income tax rate than the state where you live, you may end up owing taxes to your resident state when you file your state income tax return.
Which states have tax reciprocity agreements?
Here are all the states that offer reciprocal agreements to their residents (and their corresponding withholding exemption forms):
|If you work in…||And live in…||File form|
|Arizona||California, Indiana, Oregon, Virginia||Form WEC|
|Illinois||Iowa, Kentucky, Michigan, Wisconsin||Form IL-W-5-NR|
|Indiana||Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin||Form WH-47|
|Iowa||Illinois||Form IA 44-106|
|Kentucky||Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin||Form 42A809|
|Maryland||District of Columbia (D.C.), Pennsylvania, Virginia, West Virginia||Form MW507|
|Michigan||Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin||Form MI-W4|
|Minnesota||Michigan, North Dakota||Form MWR|
|Montana||North Dakota||Form MW-4|
|New Jersey||Pennsylvania||Form NJ-165|
|North Dakota||Minnesota, Montana||Form NDW-R|
|Ohio||Indiana, Kentucky, Michigan, Pennsylvania, West Virginia||Form IT-4NR|
|Pennsylvania||Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia||Form REV-419|
|Virginia||D.C., Kentucky, Maryland, Pennsylvania, West Virginia||Form VA-4|
|Washington, D.C.||All non-residents working in D.C. can claim exemption||Form D-4A|
|West Virginia||Kentucky, Maryland, Ohio, Pennsylvania, Virginia||Form WV/IT-104|
|Wisconsin||Illinois, Indiana, Kentucky, Michigan||Form W-220|