A worker must demand the taxation of taxes from his home state and not from the state of work. Workers do this by providing employers with an exemption form for the state of work. Proper restraint is essential. The reluctance of the wrong condition – particularly when a worker has expressly asked to be exempted from his or her state of work – can lead to fines. At the end of the year, employers must use the W-2 form to show workers how much it has been retained for each state. There is no agreement in the Tri-State area of New York (New Jersey, Connecticut and New York). In these situations, workers collect taxes from their state of work and pay taxes to their country of origin. If an employee lives in a state without a mutual agreement with Indiana, he or she can receive a tax credit for taxes withheld for Indiana. The map below shows 17 states (including the District of Columbia) where non-resident workers living in different states do not have to pay taxes.
Move the cursor over each orange state to see their reciprocity agreements with other states and find out what form non-resident workers must submit to their employers to be exempt from deduction in that state. The reciprocity rule concerns the ability for workers to file two or more public tax returns – a tax return residing in the state where they live and non-resident tax returns in all other countries where they could work, so that they can recover all taxes that have been wrongly withheld. In practice, federal law prohibits two states from taxing the same income. You do not pay taxes twice on the same money, even if you do not live or work in any of the states with reciprocal agreements. You just have to spend a little more time preparing several state returns and you have to wait for a refund for taxes that are unnecessarily withheld from your paychecks. Ohio and Virginia both have conditional agreements. When an employee lives in Virginia, he has to commute daily for his work in Kentucky to qualify. Employees living in Ohio cannot be shareholders with 20% or more equity in an S company. Tax reciprocity is a state-to-state agreement that eases the tax burden on workers who travel across national borders to work.
In the Member States of the Tax Administration, staff are not obliged to file several state tax returns. If there is a mutual agreement between the State of origin and the State of Work, the worker is exempt from public and local taxes in his state of employment. Mutual agreements like this do not affect federal payroll tax. No matter where a worker lives or works, he or she cannot avoid taxes collected at the federal level – and neither can any employer. Reciprocity agreements apply to all types of wages that a person earns through employment, including tips, commissions and bonuses. These agreements exist primarily on the East Coast and in the Midwest. When an employee works in the District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, West Virginia or Wisconsin, he can avail himself of the reciprocal agreement.