State reciprocity agreements

A reciprocal agreement is a deal between two states: each agrees not to tax wages earned within its borders by residents of the other. The work state’s employer withholds nothing for the work state and withholds the home state’s tax instead. 16 states have at least one agreement with a neighbor: Arizona, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia and Wisconsin. The District of Columbia goes further and taxes no non-resident’s wages.

Reciprocity only covers wages and salaries. Rental income, business income and gambling winnings from the other state are still taxed there.

With an agreement: Pennsylvania and New Jersey

A Pennsylvania resident who takes a job in Trenton earns $75,000. Pennsylvania and New Jersey have one of the oldest reciprocal agreements, so New Jersey withholds $0 and the employer withholds Pennsylvania tax of $2,303, the same amount as for a job in Pennsylvania ($2,303). The employee files only a Pennsylvania return.

Run the other way, a New Jersey resident working in Philadelphia pays New Jersey tax and not Pennsylvania’s. The Philadelphia wage tax is a city tax, though, and the state agreement does not cover it; a New Jersey commuter still pays it at the non-resident rate. Our local income taxes guide covers city taxes like it.

The agreement does not apply by itself. The employee files a certificate of non-residence with the employer: Form NJ-165 for New Jersey employers, REV-419 for Pennsylvania employers. Until payroll has it, the work state withholds as normal and the money has to be reclaimed on a non-resident return.

Without an agreement: New Jersey and New York

New Jersey has no agreement with New York, and that is the most common cross-border commute in the country. A New Jersey resident working in Manhattan on $75,000 has New York tax of $3,485 withheld, the same as a New Yorker would.

New Jersey taxes its residents on all their income, wherever earned, but gives a credit for tax paid to another state on the same income. On this salary New York’s tax is higher than New Jersey’s would be ($2,942), so the credit wipes out New Jersey’s tax and its withholding is $0. The commuter pays $3,485 in state tax in all, effectively New York’s rate. On a lower or higher salary, or with a different home state, the order can flip and the home state collects the difference.

That is the general rule without reciprocity: you pay roughly the higher of the two states’ tax on the income, split between them, and you file two returns.

The District of Columbia

DC cannot tax non-residents’ wages, so a Maryland resident working downtown has $0 of DC tax withheld and pays Maryland $3,249, county tax included. The employee files Form D-4A with the employer. The same applies to Virginians and to residents of any other state; DC’s rules list all 50 of them.

Agreements that need an election, or have exceptions

Arizona has agreements with California, Indiana, Oregon and Virginia, but they apply only when the employee files Form WEC with the Arizona employer. A California resident working in Arizona without the form has Arizona tax of $1,500 withheld, and California withholds $1,721 on top after its credit. With the form filed, Arizona withholds $0 and California takes $3,221.

Kentucky, Maryland, Virginia, West Virginia and North Dakota have agreements with exceptions. Most turn on where you really live: a Pennsylvania resident who keeps a home in Virginia for more than half the year, for example, can lose the protection. When an exception applies, the work state taxes you and your home state gives a credit. Kentucky is generous elsewhere: an Indiana resident working in Louisville has $0 of Kentucky tax withheld and pays Indiana $2,213, though Louisville’s own occupational tax still applies.

Every agreement on wages

The District of Columbia is left out: it taxes no non-resident's wages at all, so every commuter into DC pays only their home state.

Pennsylvania’s agreements cover Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. Virginia’s covers District of Columbia, Kentucky, Maryland, Pennsylvania and West Virginia. Agreements change rarely, but they do change; Minnesota ended its agreement with Wisconsin in 2010 and the two states have discussed restoring it since.

Practical points for commuters

• File the certificate on your first day. Each state has its own form, and payroll needs it before it can stop work-state withholding.
• Check your local tax separately. City and county taxes sit outside state agreements. Ohio cities, Philadelphia, Kansas City and St. Louis all tax commuters.
• Remote days count. If you work some days from home in another state, those days are generally taxed by your home state, unless the employer’s state has a convenience-of-the-employer rule, as New York does.
• Moving mid-year makes you a part-year resident of both states. The agreement applies only to the months you lived in the partner state.
• Two returns are normal without reciprocity. The non-resident return reports the wages earned there; the resident return reports everything and claims the credit.

Our paycheck calculator asks for your home state and work state separately and applies the agreement, the exception question or the credit as each state’s rules set out.

Every figure on this page is computed by the same code as our calculators. How we calculate.