State Tax Reciprocal Agreements
Compiled by Robert W. Ditmer, CPP*
Almost all states that impose a personal income tax require that the tax be paid on all income earned in the state, including income earned by non-residents. Non-residents generally have to file a non-resident income tax return with the state, and if the state where they live also imposes a personal income tax, then the individual will also have to file an annual tax return for all income earned, regardless of where it was earned. Residents can usually take a credit on the return for their state of residence for taxes paid to other states.
However, in order to relieve taxpayers of this double burden, many states have entered into state tax reciprocal agreements. If two states have a reciprocal agreement and an individual lives in one of those states and works in the other, the individual will only be subject to the income tax in the state where he lives. All states with reciprocal agreements have provisions that exempt an employee from having the tax withheld for the state where he works, but employers are not required to withhold the tax for the state where the employee lives. On the other hand, even though it is not mandatory, a great many employers will establish an account with a reciprocal state and withhold the tax for the employee's state of residence. For instance, in Pennsylvania the form not only declares that the employee is exempt from PA income tax withholding, but it authorizes the employer to withhold the tax for the state where the employee lives.
So almost all states that have state tax reciprocal agreements have a form that an employee can complete that would make his income exempt from withholding of the income tax for the state where the employee works. (The exception is Michigan that does not have a specific form.) The chart below is a list of all states with reciprocal agreements, as well as a link to the state's form for claiming exemption from withholding. All of the forms are in Adobe Acrobat (pdf) format.
This list is accurate as of January 1, 2010, and the links are all active as of that date. If anyone using this chart finds an outdated link, please contact me.
|State||States with State Tax Reciprocal Agreements||Exemption Form|
|District of Columbia||All non-residents who work in DC can claim exemption from withholding for the DC income tax.||D-4A|
|Illinois||Iowa, Kentucky, Michigan, Wisconsin||IL-W-5-NR|
|Indiana||Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin||WH-47|
|Kentucky||Illinois, Indiana, Michigan, Ohio, West Virginia, Wisconsin, Virginia||42A809|
|Maryland||District of Columbia, Pennsylvania, Virginia, West Virginia||MW 507|
|Michigan||Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin - Employers may create their own exemption form or use the line on MI-W4 for claiming exemption from withholding. Employee should write "Reciprocal Agreement" and the state name on that line.||MI-W4|
|Minnesota||Michigan, North Dakota||MWR|
|North Dakota||Minnesota, Montana||NDW-R|
|Ohio||Indiana, Kentucky, Michigan, Pennsylvania, West Virginia||IT-4NR|
|Pennsylvania||Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia||REV-420|
|Virginia||Kentucky, Maryland, District of Columbia, Pennsylvania, West Virginia||VA-4|
|West Virginia||Kentucky, Maryland, Ohio, Pennsylvania, Virginia||WV/IT-104|
|Wisconsin||Illinois, Indiana, Kentucky, Michigan||W-220|
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