What Is Reciprocity for State Income Tax?

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Definition

Reciprocity in state income tax indicates an agreement between two or more states that they will exempt from taxation the earned incomes of workers who work in one state but live in another. These agreements make it possible for residents of one state to work across state lines and pay income taxes only to their states of residence.

Key Takeaways

  • Reciprocity means that only your home state will withhold income tax from your paychecks if you live and work in separate states.
  • Your home state and your work state must have an agreement in place between them not to withhold taxes for any state other than the one you live in.
  • Even without reciprocity, the U.S. Supreme Court has ruled that you're entitled to a tax credit or refund if two states withhold taxes on the same pay.
  • Claiming an exemption from withholding usually involves providing your employer with a state-issued certificate, which is available online.

How Reciprocity for State Income Tax Works

If you work in one state but live in a reciprocal state, you can file an exemption certificate with your employer. This will let you avoid paying income tax in the state where you work. This doesn't mean that you're not liable for any state income tax. Your employer should withhold your home state taxes instead because you'll still owe them.

Some states might require that you make estimated tax payments to your home state on your own. Your employer won't withhold any taxes for other states and forward them to that state, even if they have reciprocity. You're still the one responsible for making sure your home state gets paid.

Note

Reciprocal agreements usually cover only earned income. Earned income includes wages, salary, tips, and commissions. They generally don't apply to other sources of income, such as interest, lottery winnings, capital gains, or any money that's not earned through employment.

You may still need to file a second tax return to claim a refund of taxes that were wrongly withheld. For example, if you live in Illinois and work in another state with which it has a reciprocal agreement, your employer might mistakenly withhold tax for the state where you work from your paycheck. In that case, you would have to file a tax return from your employer's state to get that money back.

Reciprocity has no effect on taxes or tax withholdings that are paid to the Internal Revenue Service (IRS). The IRS doesn't care what state you live in or where you earn your income. If you earned income in the United States, the IRS wants its share.

If you want to claim an exemption from taxation in your work state, you need to notify your employer. This is usually done by submitting a form. You will likely need to file your work state's exemption certificate with your employer.

You will likely need to show proof of residence. Your human resources department should be able to tell you what forms to fill out and what documentation you need to provide.

Note

You will likely be able to find the correct forms through your work state's taxing authority website.

Example of Reciprocity

For example, you would file a Virginia income tax return at the end of the year if you live there but work in Washington, D.C. You would not have to file one in D.C. because D.C. has reciprocity with all other states. This saves you the trouble of having to file two separate tax returns, which you would have to do if the two jurisdictions didn't have reciprocity.

However, even if you aren't covered by a reciprocity agreement, you still won't have to pay taxes to two different jurisdictions. A U.S. Supreme Court ruling in the case of Maryland v. Wynne prevents employees from having to pay state and local income taxes to two jurisdictions on the same income.

Still, a reciprocal agreement makes the process of sorting out which state is owed which taxes much simpler. It can save you:

  • Time: You won't have to prepare two returns.
  • Money: You won't accidentally pay taxes in more than one state.

What States Have Reciprocity Agreements?

Check the map below to learn about the reciprocity agreements between or among states. Living in any of the states covered by a reciprocal agreement means that taxes won't be withheld from your paycheck by default.

The Maryland v. Wynne U.S. Supreme Court decision applies to all states, not just to Maryland, although Maryland initially brought the suit. The Court ruled that no two jurisdictions can tax the same income. As a result, you should not have to pay income taxes to your work state and to your home state as well, even if they don't have reciprocal agreements in place.

Note

A reciprocal agreement only provides that taxes for your work state won't be withheld from your earnings, but you can't be taxed twice even if they are.

Most states have adjusted for this decision by offering tax credits in the amount of whatever you paid to your work state. But you'll have to file tax returns to claim the credits each year.

Small employers might not be aware of this rule. Contact the department of revenue or the comptroller for the state in which you're working if your employer is unsure or insists on withholding taxes from your pay.

Frequently Asked Questions (FAQs)

What is a state tax reciprocity form?

State tax reciprocity forms are filed so you can be exempt from income tax in the state you work so that you are taxed in the state you live in. You will likely have to submit the forms to your employer. Your job may provide them, but you should also be able to find the correct forms through your work state's taxing authority website.

How do I apply for tax reciprocity in another state?

Typically you have to notify your employer to claim an exemption from withholding. Your employer will likely require a state-issued certificate, which they may provide or is available online.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Illinois Revenue. "What If I Live or Work in a State That Has a Reciprocal Agreement With Illinois?" Accessed Jan. 23, 2022.

  2. American Bar Association. "Wynne Is a Win for Most State Taxpayers."

  3. Supreme Court of the United States. "Supreme Court of the United States: Comptroller of the Treasury of Maryland v. Wynne Et Ux," Pages 4-5.

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