Sixteen states and the District of Columbia have state tax reciprocity agreements that let cross-border commuters pay income tax only to their home state, not the state where they work. If your home state and work state share one of these pacts, you file a single form with your employer, your home state’s tax comes out of your paycheck, and you skip the non-resident return entirely. The agreements are pair-specific, though. Living in a participating state helps only if your particular home-work combination is covered.
Every Current Agreement by State
Reciprocity is specific to each pair of states. The full list, verified against each state’s revenue department, is below.
- District of Columbia: Maryland, Virginia
- Illinois: Indiana, Iowa, Kentucky, Michigan, Wisconsin
- Indiana: Illinois, Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin
- Iowa: Illinois
- Kentucky: Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin
- Maryland: District of Columbia, 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: District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
- West Virginia: Kentucky, Maryland, Ohio, Pennsylvania, Virginia
- Wisconsin: Illinois, Indiana, Kentucky, Michigan
Kentucky has the most partners at seven. Iowa has the fewest, covering only Illinois.1Iowa Department of Revenue. Iowa – Illinois Reciprocal Agreement New Jersey’s sole agreement is with Pennsylvania; it was briefly terminated in 2017 and has since been restored.2NJ Division of Taxation. PA/NJ Reciprocal Income Tax Agreement If your combination isn’t on the list, reciprocity doesn’t apply, and you’ll use the credit method described at the end of this article.
Nine states impose no personal income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If either your home or work state is one of these, reciprocity is beside the point for that side of the equation.
How to Claim the Withholding Exemption
Having an agreement on paper does nothing for your paycheck until you tell your employer. You file a state-specific withholding exemption form with your payroll department when you start a new job or when a move puts you into a reciprocal setup.
Each work state has its own form. Illinois uses Form IL-W-5-NR. Michigan uses Form MI-W4. Pennsylvania uses Form REV-419. Your employer’s HR department or the work state’s revenue website has the current version. On the form you certify that you’re a legal resident of a state with a reciprocal agreement. Once it’s on file, your employer stops withholding for the work state and starts withholding for your home state.3Department of Revenue. Determining Residency for PA Personal Income Tax Purposes
Skip this step and your employer withholds for the wrong state all year. You then have to file a non-resident return in the work state to claw that money back, while separately owing your home state. Pennsylvania adds a further wrinkle: if your out-of-state employer doesn’t withhold PA tax and your compensation exceeds $14,000 in 2026, you’re required to make quarterly estimated payments to PA on your own.3Department of Revenue. Determining Residency for PA Personal Income Tax Purposes Filing the exemption form up front spares you both the cash-flow gap and the extra return.
What Reciprocity Doesn’t Cover
These agreements are a narrow tool. They apply to W-2 wages, salaries, tips, commissions, and bonuses. Compensation for services performed as an employee.2NJ Division of Taxation. PA/NJ Reciprocal Income Tax Agreement Other income sourced to the work state stays taxable there.
Non-Wage Income
Rental income from out-of-state property, capital gains, business profits, and 1099 contractor payments are not covered. An Illinois resident who owns a rental property in Indiana still files an Indiana non-resident return for that rental income, even though W-2 wages from an Indiana employer are exempt. Partnership and S-corporation income sourced to the work state is treated the same way.4Cornell Law Institute. 45 IAC 3.1-1-115 – Reciprocal Agreement States Pennsylvania’s agreement explicitly excludes shareholder-employees with a 20% or greater interest in an S-corporation.3Department of Revenue. Determining Residency for PA Personal Income Tax Purposes
Local and City Income Taxes
Reciprocity applies to state-level income taxes only. Cities and counties that levy their own income taxes on non-resident workers are not bound. This shows up most often in Ohio, Pennsylvania, and Michigan, where local wage taxes are common. A Kentucky resident working in Cincinnati owes no Ohio state income tax but still owes Cincinnati’s local earnings tax, which requires its own filing.
Remote Work Complications
These agreements were written for commuters who physically cross a state line. Remote work introduces situations they weren’t designed to handle.
Where You Sit Usually Controls
The general rule is that income tax is owed based on where the employee physically performs the work. If you live in Virginia and your employer is in Maryland but you work from your Virginia home, Maryland reciprocity isn’t really in play, because the income is sourced to Virginia, where you both live and work. Splitting time between an office in one state and a home in another can leave you owing tax to both in proportion to the days spent in each, unless a reciprocity pact covers the pair.
The Convenience of the Employer Rule
Six states go the other way: Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania tax remote workers based on the employer’s office location, not where the employee sits. If your employer is headquartered in New York and you work from home in another state, New York treats those wages as New York-source income. Your home state also taxes you as a resident, and you rely on the credit method to prevent double taxation. Reciprocity does not override this rule, because the convenience doctrine deems the income earned in the employer’s state regardless of the employee’s physical location.
Moving Between Reciprocal States Mid-Year
If you move from one reciprocal state to another during the year, you’ll generally file as a part-year resident in both. Each state taxes only the wages you earned while you were its resident, and the reciprocity mechanics reset at the move date.
Suppose you live in Indiana through June, then move to Ohio in July while keeping the same job in Michigan. Through June, Michigan’s reciprocity with Indiana routes your tax to Indiana. From July on, Michigan’s reciprocity with Ohio routes it to Ohio. You’d file part-year resident returns in both Indiana and Ohio, allocating wages to each period, and submit a fresh withholding exemption form to your employer at the move date so payroll switches over.
Maryland adds a wrinkle: its reciprocity does not apply if you spend more than 183 days per year in Maryland while living in a reciprocal state, with an exception for West Virginia residents.
When No Agreement Exists: The Credit Method
When no reciprocity covers your pair of states, or when you never filed the exemption form, the fallback is the credit for taxes paid to another state. It’s how most multi-state workers avoid double taxation.
The work state taxes your income first. You file a non-resident return there and pay whatever it charges on wages earned within its borders. You then file a resident return in your home state, reporting all your income, and take a credit for the tax already paid to the work state so the same dollars aren’t taxed twice.
The credit is capped. Your home state credits you for either the amount you paid to the work state or the amount your home state would have charged on that income, whichever is less. Say you earn $80,000 in a work state with a 5% effective rate, paying $4,000 there. Your home state’s rate on that income would be 7%, or $5,600. Your home state credits you $4,000, and you owe the remaining $1,600 at home. If the rates were reversed, the credit would be capped at the home-state figure. The practical result is that you pay the higher of the two rates.
The credit method works, but it means two returns instead of one and waiting for the refund math to settle. Non-resident refunds for e-filed returns typically take two to four weeks; paper filings can stretch to twelve weeks or longer. That delay is the real cost of not filing the exemption form when reciprocity is available.