Indiana has an income tax reciprocity agreement with five neighboring states: Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. If you live in one of those states and commute to a job in Indiana, Indiana will not tax your wages, and the reverse is also true for Indiana residents working across those borders.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income You claim the exemption by filing a short form with your employer. Two things trip people up: the agreement only covers wages, salaries, tips, and commissions, and it does not exempt you from Indiana county income tax.
The Five Reciprocal States
Reciprocity applies both directions with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin.2Legal Information Institute (LII). 45 IAC 3.1-1-115 – Reciprocal Agreement States Live in Ohio and work in Indiana? Indiana doesn’t tax your wages. Live in Indiana and work in Ohio? Ohio doesn’t tax yours. Indiana Code 6-3-5-1 makes this automatic whenever the other state’s law contains a matching exemption for Indiana residents.3Indiana General Assembly. Indiana Code 6-3-5-1 – Nonresidents; Indiana Income
Illinois is not on the list. Illinois once had a reciprocity arrangement with Indiana, but it was rescinded in the late 1990s and has never been reinstated. If you live in Illinois and work in Indiana, your employer should withhold Indiana state tax, and you claim a credit on your Illinois return for what Indiana took.
What Income the Agreement Covers
Reciprocity applies only to wages, salaries, tips, and commissions. That’s the entire list.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income If your Indiana income comes from anywhere else, Indiana can still tax you on it even if you live in a reciprocal state.
Non-wage income that falls outside the agreement includes:
- Rental income from Indiana property
- Business income from an Indiana business, including partnership or S-corporation distributions tied to Indiana activity
- Gambling winnings from Indiana casinos and other Indiana gambling
- Dividends, interest, or capital gains connected to Indiana sources
A resident of a reciprocal state with any of these Indiana income types has to file Form IT-40PNR, Indiana’s nonresident or part-year resident return, and pay Indiana tax on the non-wage portion.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income
How to Claim the Exemption: Form WH-47
To stop your Indiana employer from withholding Indiana state income tax, file Form WH-47, the Certificate of Residence, with your employer. The form identifies your home state and certifies that you qualify for the exemption.2Legal Information Institute (LII). 45 IAC 3.1-1-115 – Reciprocal Agreement States Once your employer has it on file, they stop withholding Indiana state tax on your paychecks going forward.
This is the step most people skip. Without WH-47 in hand, your employer has no way to know you qualify, so they withhold Indiana income tax by default and you have to file a return to get it back. Give the form to your employer when you start the job, or at the beginning of the tax year if you’re already on payroll.
Indiana County Tax Still Applies
The agreement only covers Indiana state income tax. It does not cover Indiana county income tax. If your Indiana workplace sits in a county that levies a local income tax, you owe that county tax on your wages even as a resident of a reciprocal state.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income
Nearly every Indiana county imposes a local tax. For 2026, county rates range from 0.5% in Porter County up to 3.0% in Randolph County.4IN.gov. How to Compute Withholding for State and County Income Tax The rate that applies is based on where your principal place of work is located as of January 1. Your employer should keep withholding county tax after you file WH-47 for the state exemption.
Some counties have their own local reciprocity arrangements with local governments in other states under Indiana Code 6-3.6-8-4, which can exempt certain workers from county tax as well.5Indiana General Assembly. Indiana Code 6-3.6-8-4 – Reciprocity Agreements for Exemption From Tax; Local Governmental Entities Whether one applies to you is worth confirming with your employer or the Indiana Department of Revenue. Don’t assume you’re covered at the county level just because you’re covered at the state level.
Getting a Refund If Indiana Tax Was Already Withheld
If your employer withheld Indiana state tax before you turned in Form WH-47, or if you didn’t know about the exemption at all, you recover the money by filing Form IT-40RNR, the Indiana Reciprocal Nonresident Individual Income Tax Return.6Indiana Department of Revenue. IT-40 Full Year Resident Individual Income Tax Booklet 2025 IT-40RNR is designed specifically for residents of the five reciprocal states whose only Indiana income was wages, salaries, tips, or commissions.
You report the Indiana state and county tax withheld on Schedule IN-W and carry the totals to Schedule 5. Indiana state tax that shouldn’t have been withheld comes back as a refund. The form also calculates any county tax you legitimately owe, so if your county liability is larger than what was withheld, your refund shrinks or you end up with a small balance due.
You generally have three years from the original due date of the return to claim a refund. For the 2025 tax year, that means filing by April 2029.6Indiana Department of Revenue. IT-40 Full Year Resident Individual Income Tax Booklet 2025 Filing sooner is better; W-2s and pay records have a way of disappearing over three years.
Indiana Residents Working in a Reciprocal State
Reciprocity runs both ways. If you live in Indiana and commute to Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin, that state should not tax your wages.2Legal Information Institute (LII). 45 IAC 3.1-1-115 – Reciprocal Agreement States You file an exemption form with your out-of-state employer, the equivalent of WH-47 in that state’s system. Each reciprocal state has its own form.
If the out-of-state employer withholds their state’s tax anyway, you can’t take a credit for it on your Indiana return. You have to file a nonresident return with that state to get the withholding refunded, and report all your income on your Indiana return as usual.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income Indiana’s flat state rate for 2026 is 2.95%, and that’s what you pay on those wages regardless of which reciprocal state you physically work in.
Moving Between Indiana and a Reciprocal State Mid-Year
If you were an Indiana resident for part of the year and a resident of a reciprocal state for the rest, you’re a part-year resident and file Form IT-40PNR.1IN.gov. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income Indiana taxes all the income you received while living in Indiana, plus any Indiana-source income you received while living elsewhere. Reciprocity only helps for the months you were a nonresident living in the reciprocal state. You’ll also file a return in the other state for the months you lived there. Splitting income across months by state is where mid-year moves get genuinely complicated, and it’s one situation where tax software or a preparer usually pays for itself.
Residency, Remote Work, and Where You Actually Live
Reciprocity only works if you’re truly a resident of one of the five qualifying states. When residency is in question, Indiana looks at where your primary home is, where you spend your time, where you’re registered to vote, where your driver’s license was issued, and your stated intent to remain. No single factor decides it, but the more of them that point the same direction, the cleaner your case.
Remote work has muddied this. Living in Michigan and working from home full-time for an Indiana employer keeps you a Michigan resident, and reciprocity still applies. But if you start spending weeks at a stretch at an Indiana apartment, register a car in Indiana, or otherwise shift the center of your life across the border, you can be treated as an Indiana resident, and the exemption disappears with that finding. Keep documentation of where you actually live.
Penalties for Getting It Wrong
The two common failure modes are underwithholding for the state that actually gets the tax, and filing in the wrong state. Both can trigger penalties.
Indiana imposes a 10% penalty on underpayment of estimated tax for each period you fell short.7IN.gov. Rates, Fees and Penalties If you assumed reciprocity covered all your Indiana income when it only covered wages, you can end up owing Indiana tax with penalties layered on top. The mirror problem hits Indiana residents whose Kentucky or Ohio employer withheld the wrong state’s tax: nothing went to Indiana on your behalf, so Indiana may expect estimated payments.
File the right exemption form early, verify with your employer that state withholding is off and county withholding is still on, and confirm that only the correct state is getting your tax payments. If you have any non-wage income from Indiana, don’t rely on reciprocity for it. File IT-40PNR and pay what you owe.