What Is State Income Tax Reciprocity?
If you live in one state and work in another, you might be able to take advantage of reciprocal state tax agreements. This is made possible when two or more states have an agreement to exempt the income earned by nonresidents from a nearby state.
For example, with state income tax reciprocity, a taxpayer who lives in Indiana but works in Kentucky will only pay income taxes to their state of residency.
Reciprocal State Tax Agreements
You should check with your employer to understand how they handle state tax reciprocity. In most cases, if there’s a reciprocal state tax agreement, you can fill out a withholding exemption request form for the nonresident state and submit it to your employer. That way, your employer will only withhold state income tax for the correct state.
Employers should review the reciprocal state tax agreements that pertain to their employees and the relevant states to understand exactly how to apply the rules. Additionally, employers should provide you with the appropriate form for the states involved.
Learn more on how taxes impact your employee stock purchase plan from the tax experts at H&R Block.
Learn about state and local income tax with our articles from the tax experts at H&R Block.
Form 709 is the IRS tax form that’s required in certain gift giving situations. Let the experts at H&R Block help you determine when Form 709 should be filed.
What is Cryptocurrency? Bitcoin, Litecoin, and the like leave many wondering how to classify this new form of investment. Find the answer at H&R Block.