Do PA and NY Have a Reciprocal Tax Agreement?

Pennsylvania and New York do not have a reciprocal tax agreement. If you live in one state and work in the other, both states tax that wage income, and you file a return in each. A resident credit in your home state keeps you from paying twice on the same dollar, but because Pennsylvania’s flat 3.07% rate sits well below New York’s progressive brackets (which climb to 10.9%), the credit math leaves most cross-border workers paying the higher of the two rates.

Which States Pennsylvania Actually Has Reciprocity With

A reciprocal agreement lets you skip the work state’s income tax entirely: your employer withholds only your home state’s tax, and you file one state return. Pennsylvania has these agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia.¹

New York isn’t on that list, and it doesn’t have a reciprocal income tax agreement with any state. Every nonresident earning income from New York sources owes New York income tax on those earnings, and every New York resident earning income elsewhere owes New York tax on that income as well. If you’re commuting between Pennsylvania and New York, there’s no shortcut filing.

How Both States Tax the Same Paycheck

The work state taxes your earnings first. A Pennsylvania resident working in New York owes New York income tax on the wages earned there, and Pennsylvania also taxes that same income because Pennsylvania taxes residents on worldwide income.² It works the same in reverse: a New York resident earning wages in Pennsylvania owes Pennsylvania’s 3.07% flat tax on those wages and New York tax on all income.

To prevent true double taxation, both states offer a resident tax credit for the tax you paid the other state. The credit doesn’t make the overlap disappear. It just stops you from paying two full bills on the same income.

What the Resident Credit Really Covers

The credit is capped at the lesser of what you paid the other state or what your home state would charge on that same income. Because the two rate structures are so different, the cap bites in opposite ways depending on which direction you commute.

Pennsylvania’s credit is limited to 3.07% of the income earned in the other state.³ A Pennsylvania resident who paid New York 6% on $100,000 of wages can only claim $3,070 of credit against Pennsylvania tax, not the $6,000 sent to New York. The Pennsylvania liability on that income drops to zero, but the full New York tax still came out of the paycheck.

New York’s credit works from the other side. It cannot reduce your New York tax below what you would owe if the out-of-state income were simply excluded.⁴ Since Pennsylvania’s 3.07% sits below every New York bracket, a New York resident working in Pennsylvania gets a full credit for the Pennsylvania tax paid, then owes New York the difference.

Either way, the effective rate on your work income ends up at New York’s rate. The only place Pennsylvania residency saves money is on income earned inside Pennsylvania, which is taxed at the flat 3.07%.

Filing Steps if You Live in Pennsylvania and Work in New York

File the nonresident return first. New York Form IT-203, the Nonresident and Part-Year Resident Income Tax Return, reports only the income from New York sources. You must file IT-203 if you had New York source income and your federal adjusted gross income exceeds the New York standard deduction.⁵

Then file Pennsylvania Form PA-40 reporting all income from every source.² Attach PA Schedule G-L to claim the resident credit for taxes paid to New York, along with a copy of your completed IT-203 and your W-2s.³ The G-L credit is the lesser of the New York tax paid or 3.07% of the taxable income earned in New York, which usually zeros out your Pennsylvania liability on those wages.

Filing Steps if You Live in New York and Work in Pennsylvania

File Pennsylvania Form PA-40 as a nonresident, reporting only Pennsylvania-source income. Any resident, part-year resident, or nonresident who earns at least $1 in taxable Pennsylvania income must file.² Your employer should be withholding Pennsylvania’s 3.07% from each paycheck.

Then file your New York resident return reporting all income. Attach Form IT-112-R to claim the New York resident credit for Pennsylvania taxes paid.⁴ The credit covers the full Pennsylvania tax, and you’ll owe New York the difference between its tax and what Pennsylvania already took.

Remote Work and New York’s Convenience of the Employer Rule

Remote work makes the cross-border picture worse, not better. New York applies a “convenience of the employer” test. If your assigned or primary office is in New York, every day you work from your Pennsylvania home still counts as a New York work day unless your home office qualifies as a “bona fide employer office” under New York’s criteria.⁶

The test is necessity versus convenience. If your employer requires you to work from home and has no New York office available to you, those are out-of-state days. If you telecommute because you prefer it, because your commute is long, or because your employer simply allows a hybrid schedule, New York treats those home-office days as New York work days and taxes them.⁶

Qualifying as a bona fide employer office requires meeting a primary factor test or a combination of secondary and other factors set by the New York Tax Department. A desk and an internet connection won’t do it. The employer generally has to have established the home office as a genuine work location with specific business reasons.

In practice, many Pennsylvania residents working remotely for New York-based employers owe New York tax on their full salary. The Pennsylvania resident credit still offsets what it can, but the total bill tracks New York’s rates. If you’re in a hybrid arrangement, get the day allocation right on IT-203, because New York audits it closely.

Philadelphia and New York City Local Taxes

Local taxes add a layer that cross-border filers often miss, and the two cities handle nonresidents very differently.

Philadelphia Earnings Tax

Philadelphia imposes an Earnings Tax of 3.74% on residents’ wages regardless of where those wages are earned.⁷ A Philadelphia resident commuting to New York owes this tax on top of New York state tax. Philadelphia does not offer a credit against its Earnings Tax for state income taxes paid to another state.⁸ The Pennsylvania Schedule G-L credit still handles the state-level overlap, but the Philadelphia tax sits on top with no offset.

A Philadelphia resident earning $100,000 in New York could owe roughly 6% to New York plus 3.74% to Philadelphia. The Pennsylvania credit zeros out the state liability, but the combined state-and-local rate on those wages pushes close to 10% before federal tax.

New York City Income Tax

New York City levies its own income tax on top of the state tax, with rates in the range of roughly 3.1% to 3.9%. It applies only to New York City residents. A Pennsylvania resident working in Manhattan owes New York State income tax but not the separate NYC tax. Check your pay stubs: if your employer is withholding NYC tax from a Pennsylvania resident’s paycheck, you can claim a refund on IT-203.⁵

Withholding and Estimated Payments

Without reciprocity, employers typically withhold only for the work state. A New York employer will withhold New York state tax from a Pennsylvania resident’s paycheck but usually won’t withhold Pennsylvania tax. For most Pennsylvania residents working in New York, the resident credit zeros the Pennsylvania bill anyway, so this rarely creates a balance due.

The real withholding problem runs the other way. A Pennsylvania employer withholds 3.07% for Pennsylvania, but a New York resident still owes New York’s higher rate on that same income. With nothing withheld for New York during the year, you may need quarterly estimated payments to New York to avoid underpayment penalties. Compare your expected New York liability against your actual withholding early in the year and adjust.

If you change jobs or shift your commuting pattern mid-year, update withholding with each employer right away. Two state returns with mismatched withholding is one of the most common triggers for notices from both tax departments.

1
Pennsylvania Department of Revenue. Employee’s Nonwithholding Application Certificate REV-419
2
Pennsylvania Department of Revenue. PA Personal Income Tax Guide – Brief Overview and Filing Requirements
3
Pennsylvania Department of Revenue. Resident Credit for Taxes Paid PA-40/PA-41 G-L
4
New York State Department of Taxation and Finance. Instructions for Form IT-112-R New York State Resident Credit
5
New York State Department of Taxation and Finance. Instructions for Form IT-203 Nonresident and Part-Year Resident Income Tax Return
6
New York State Department of Taxation and Finance. TSB-M-06(5)I Convenience of the Employer Test
7
City of Philadelphia. Earnings Tax (Employees)
8
City of Philadelphia. Request a Refund for Taxes Paid to Local Jurisdictions