How reciprocity works

When two states have a reciprocity agreement, the employer in the work state generally should not withhold that state’s income tax from a nonresident employee who lives in the partner state. Instead, the employee files an exemption or withholding certificate with the employer (requirements and form names vary by state). The resident state then taxes the income on the employee’s resident return.

Step-by-step for most employees

  1. Confirm whether your home and work states have a reciprocity agreement. State revenue departments list agreements; if you’re unsure, start with the IRS guidance on state withholding and state revenue websites (see Resources).
  2. Tell your employer you qualify for reciprocity and complete the employer’s certificate or exemption form so the work-state withholding stops.
  3. Continue to file a resident state return and pay any state income tax due there. If withholding occurs in the work state by mistake, you can usually file a refund claim with that state.

Who this affects

  • Commuters who live in one state and work in another across a state border.
  • Some telecommuters whose physical work location is counted in another state under state rules.
  • Part-time workers who regularly cross state lines for employment.

What to watch for

  • Form names and processes vary by state. Many states use a withholding exemption or nonresident certificate; others require employees to submit a residency affidavit. Employers also have different withholding obligations.
  • Reciprocity generally covers wage income; other income (rental, business, pensions) is typically sourced to your state of residence or to the state where the income arises—rules differ.
  • If you do not file the exemption with your employer, the work state may withhold tax and you’ll need to claim a refund or take a credit on your resident return.

Common mistakes

  • Assuming reciprocity exists. Not every neighboring state pair has an agreement.
  • Forgetting to submit the exemption form to the employer, causing unnecessary withholding.
  • Overlooking telework rules. Some states treat remote work differently—days worked in the employer’s state can trigger nonresident tax.

Real-world context (from practice)

In my experience advising cross-border workers, the most common issue is incorrect withholding—employees often qualify for exemption but never provide the certificate to payroll. Resolving a refund claim from a work state can take months, while correcting withholding is usually immediate once the employer gets the right form.

When reciprocity won’t fully prevent dual filing

Reciprocity reduces withholding but does not always remove the need to file a return in the work state. Some states require a nonresident return if you earned income there even if tax was not withheld. Likewise, if you have other sources of income sourced to the work state, you may still owe tax there.

Practical checklist

  • Verify reciprocity: search your state revenue department website or review state withholding guidance.
  • Complete the employer’s exemption/withholding form promptly.
  • Monitor paystubs to confirm the work-state tax stops.
  • If tax was withheld incorrectly, file a nonresident return or refund claim with the work state and claim resident credit if allowed.
  • Consult a tax professional for multi-state or complex situations (e.g., multiple employers, high income, remote-work rules).

Resources and authoritative references

  • IRS, Publication 505: Tax Withholding and Estimated Tax (for federal guidance on withholding mechanics and links to state resources). IRS Publication 505.
  • State revenue department websites: search your state’s Department of Revenue for current reciprocity forms and instructions.
  • Consumer Financial Protection Bureau: general consumer tax guidance and links to state agencies (https://www.consumerfinance.gov).

Internal links (further reading)

FAQs (short answers)

Q: If my employer withholds the work-state tax by mistake, can I get a refund?
A: Yes — you can file a refund claim or a nonresident return in the work state; additionally you’ll report income on your resident return.

Q: Does reciprocity apply to self-employment income?
A: Typically not. Reciprocity usually applies to wages and salaries; self-employment income is sourced based on where the work is performed and state rules.

Professional disclaimer

This article is educational and does not replace personalized tax advice. State rules change; consult your state revenue department or a qualified tax professional for guidance specific to your situation.