State Tax Reciprocity Agreements
Quick Answer
State tax reciprocity agreements allow workers who live in one state and work in another to pay income tax only in their state of residence. Without reciprocity, you may owe tax in both states and must file returns in each, claiming a credit to avoid double taxation. About 30 states participate in reciprocity agreements with at least one neighboring state, and these agreements simplify tax filing for cross-border commuters.
How Reciprocity Works
With Reciprocity
You live in State A and work in State B. If A and B have a reciprocity agreement, your employer only withholds State A taxes. You file one state return with State A. Simple.
Without Reciprocity
You live in State A and work in State B. State B taxes your income earned there. State A taxes your worldwide income. You file returns in both states. State A gives you a credit for taxes paid to State B, which usually (but not always) prevents you from paying more than the higher of the two rates.
States With Reciprocity Agreements
| State | Has Reciprocity With |
|---|---|
| Arizona | California, Indiana, Oregon, Virginia |
| D.C. | All states (D.C. taxes only residents) |
| Illinois | Iowa, Kentucky, Michigan, Wisconsin |
| Indiana | Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin |
| Iowa | Illinois |
| Kentucky | Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin |
| Maryland | D.C., Pennsylvania, Virginia, West Virginia |
| Michigan | Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin |
| Minnesota | Michigan, North Dakota |
| Montana | North Dakota |
| New Jersey | Pennsylvania |
| North Dakota | Minnesota, Montana |
| Ohio | Indiana, Kentucky, Michigan, Pennsylvania, West Virginia |
| Pennsylvania | Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia |
| Virginia | D.C., Kentucky, Maryland, Pennsylvania, West Virginia |
| West Virginia | Kentucky, Maryland, Ohio, Pennsylvania, Virginia |
| Wisconsin | Illinois, Indiana, Kentucky, Michigan |
Real Example With Actual Numbers
Tom lives in New Jersey and works in Pennsylvania. Both states have reciprocity.
With reciprocity: Tom's employer withholds New Jersey state tax (progressive, about 3.5% effective on $90,000 = ~$3,150). He files only a New Jersey return.
Without reciprocity (hypothetical): Tom would owe Pennsylvania tax (3.07% = $2,763) and New Jersey tax on his worldwide income (~$3,150). He would claim a credit of $2,763 on his NJ return for PA taxes paid. Net result: he pays the higher of the two rates (NJ), but must file two returns and manage the credit.
Reciprocity saves Tom time and complexity. Check your two-state situation at the SalaryHog calculator.
When Reciprocity Doesn't Exist
If you commute across state lines without reciprocity, here is the typical process:
- Your work state withholds tax based on its rates
- Your home state requires you to report all income
- You claim a credit on your home state return for taxes paid to the work state
- You may owe the difference if your home state rate is higher
For example, someone living in New York and working in Connecticut would pay Connecticut's tax on work income and receive a credit from New York. Since New York rates are higher, they would owe the difference to New York.
Special Cases
Remote Workers
Remote work complicates reciprocity because some states (like New York) use a "convenience of the employer" rule that taxes you even if you work from home in another state.
Multiple Work States
If you travel to multiple states for work, you may owe tax in each state proportional to the days worked there. Reciprocity typically only covers your primary work state.
No-Tax State Residents
If you live in a no-income-tax state and work in a state with income tax, you'll owe the work state tax with no home state to claim a credit from. However, if you live in a state with income tax and work in a no-tax state, you owe only your home state tax.
Filing Tips
- Inform your employer about your state of residence so they withhold from the correct state
- File a reciprocity exemption form with the work state if applicable (each state has its own form)
- Keep records of days worked in each state
- Use tax software that handles multi-state returns, or consult a tax professional
Run your salary through the SalaryHog calculator to see state tax in your home state, or use the relocation tool to compare different state scenarios.