This can greatly simplify the tax time for people who live in one state but work in another, which is relatively common among those who live near the state`s borders. Many States have reciprocal agreements with others. The map below shows 17 orange states (including the District of Columbia) where non-resident workers living in common states do not have to pay taxes. Hover over each orange state to see their reciprocity agreements with other states and find out which form non-resident workers must submit to their employers to be exempt from withholding in that state. Ohio has tax reciprocity with the following five states: If your employee works in Illinois but lives in one of the mutual states, they can file Form IL-W-5-NR, Declaration of Employee Non-Residency in Illinois, for the Illinois State Income Tax Exemption. If an employee who lives in one state and works in another works for you, you can automatically start inflating taxes for the employment state. If you are withholding taxes for the state of work and not for the state of residence, the employee must make quarterly tax payments to their home state. Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin. Submit the MI-W4 exemption form to your employer if you work in Michigan and live in one of these states. At the end of the year, use Form W-2 to tell the employee how much you withheld for state income tax.
Tax reciprocity applies only to both both and local taxes. It applies to wages that a person earns during their employment, including tips, commissions, bonuses, etc. These agreements are entirely inter-State, and not all States participate in them. Employees who work in D.C. but do not live there do not have to withhold income tax D.C. Why? D.C. has a tax reciprocity agreement with each state. Michigan`s alternative states for taxes include: Although states that are not listed do not have tax reciprocity, many have an agreement in the form of loans. Again, a credit agreement means that the employee`s home state grants him a tax credit for the payment of state income tax to his state of work. If your employer withholds taxes for the other state and you find that you are exempt, correct your information with your employer for the future and contact the other state to find out how to request a refund.
Reciprocity agreements mean that two states allow their residents to pay taxes only where they live – rather than where they work. This is especially important, for example, for high-income earners who live in Pennsylvania and work in New Jersey. Pennsylvania`s highest rate is 3.07 percent, while New Jersey`s highest rate is 8.97 percent. .