Illinois has income tax reciprocity agreements with four states: Iowa, Kentucky, Michigan, and Wisconsin. If you live in one of those states and work in Illinois, or you live in Illinois and work in one of them, your wages are taxed only by your home state.1Illinois Department of Revenue. Filing Requirements
The authority for these agreements comes from Illinois tax law, which lets the Director of the Department of Revenue enter reciprocal arrangements with other states so that worker compensation is taxed only by the employee’s state of residence.2Illinois General Assembly. 35 ILCS 5/302 A Kentucky resident commuting to a Chicago office owes income tax only to Kentucky. An Illinois resident who crosses into Wisconsin for work pays Illinois income tax on those wages, and Wisconsin will not tax that compensation.1Illinois Department of Revenue. Filing Requirements
What the Agreements Cover
Reciprocity applies to wages, salaries, tips, and commissions. That covers most ordinary employee pay.
It does not cover other kinds of income. Gambling winnings earned in Iowa, for example, remain taxable by Iowa even if you live in Illinois. Unemployment compensation tied to work in another state is also still taxable by that state.3Department of Revenue. Iowa – Illinois Reciprocal Agreement Rental income, business profits, and investment income earned across state lines fall outside these agreements as well. If your out-of-state income is anything other than employee pay, reciprocity probably doesn’t help you.
How to Claim the Exemption
File the Right Form With Your Employer
If you live in Iowa, Kentucky, Michigan, or Wisconsin and work for an Illinois employer, give your payroll department a completed Form IL-W-5-NR, the Employee’s Statement of Nonresidence in Illinois.3Department of Revenue. Iowa – Illinois Reciprocal Agreement That form tells the employer to withhold your home state’s income tax instead of Illinois tax. You can download it from the Illinois Department of Revenue’s withholding forms page.4Illinois Department of Revenue. 2026 Withholding (Payroll) Tax Forms
Illinois residents who work in one of the four reciprocal states file the equivalent form with their out-of-state employer. Iowa, for instance, uses Form 44-016, the Employee’s Statement of Nonresidence in Iowa.3Department of Revenue. Iowa – Illinois Reciprocal Agreement
If you change your state of residence after filing, you have to notify your employer within ten days so withholding can be adjusted.5Illinois Department of Revenue. IL-W-5-NR Employee’s Statement of Nonresidence in Illinois
Getting a Refund if Illinois Tax Was Already Withheld
If your Illinois employer withheld Illinois income tax from your pay before you filed Form IL-W-5-NR, you can get that money back. File Form IL-1040 along with Schedule NR to claim a refund of the incorrectly withheld tax. Residents of Iowa, Kentucky, Michigan, and Wisconsin are not required to pay Illinois income tax on wages, salaries, tips, or commissions from Illinois employers, but filing the return is how you recover anything already withheld.1Illinois Department of Revenue. Filing Requirements
What Illinois Reciprocity Does Not Include
“Reciprocity” means different things in different contexts, and the four-state tax arrangement is narrower than people often assume. A few things to know if you’re coming to Illinois from elsewhere or moving between states:
Concealed Carry Permits
Illinois does not honor any other state’s concealed carry permit. A permit from Indiana, Missouri, or anywhere else is not valid in Illinois. Residents of a short list of approved states can apply for a separate Illinois non-resident concealed carry license through the Illinois State Police, but that is an application process, not recognition of your existing permit.6Illinois State Police. Concealed Carry License
Driver’s Licenses and Vehicle Registration
Illinois recognizes a valid out-of-state driver’s license only temporarily. New residents have 90 days to get an Illinois driver’s license and 30 days to register an out-of-state vehicle with the Illinois Secretary of State.7Illinois General Assembly. 625 ILCS 5/3-801 Nonresidents just passing through or temporarily working in Illinois can keep their home state license and plates as long as both remain valid.
Professional Licensing
Illinois belongs to the Interstate Medical Licensure Compact for physicians and to the Psychology Interjurisdictional Compact (PSYPACT) for psychologists, which has been in effect since July 1, 2020.8Psychology Interjurisdictional Compact. PSYPACT Map/States Lawyers licensed in another U.S. jurisdiction for at least three years may be eligible for admission to the Illinois bar without taking the Illinois bar exam under Illinois Supreme Court Rule 705.9Illinois Courts. Rule 705 – Admission on Motion Illinois has not joined the Nurse Licensure Compact or the Interstate Teacher Mobility Compact, so nurses and teachers relocating to Illinois still have to apply for an Illinois license through the standard process.