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State Reciprocity

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State Reciprocity: Simplifying State Income Tax Obligations for Cross-State Workers

Reciprocity in state income tax is a mutually beneficial agreement between states that aims to streamline tax obligations for individuals who reside in one state but work in another. These agreements enable residents to work across state lines without the burden of paying income taxes in both states. For instance, if you reside in Pennsylvania but work in Virginia, you are solely responsible for paying taxes to Pennsylvania, exempting you from additional tax obligations in Virginia. The following states participate in reciprocal agreements: Arizona, California, Indiana, Iowa, Illinois, Kentucky, Michigan, Minnesota, Maryland, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, Wisconsin, and Washington D.C.

Key Points of the Reciprocity Policy:

  • Exclusive Home State Tax Withholding:

Reciprocity ensures that only your home state withholds income tax from your paychecks if you live and work in separate states. This arrangement simplifies tax filing by focusing solely on your state of residence.

  • Agreements Between Home and Work States:

For reciprocity to apply, your home state and work state must have an agreement in place that restricts tax withholding to your state of residence and excludes any other state.

  • Earned Income Coverage:

Reciprocal agreements predominantly cover earned income, encompassing wages, salary, tips, and commissions. Other sources of income, such as interest, lottery winnings, capital gains, or non-employment-related funds, generally fall outside the scope of these agreements.

  • Federal Tax Independence:

Reciprocity has no bearing on federal taxes, as the Internal Revenue Service (IRS) is solely concerned with the income earned within the United States. Regardless of your residency or work state, the IRS mandates its rightful share of taxes on any income earned domestically.

  • Safeguarding Against Double Taxation:

Even in the absence of reciprocity, the U.S. Supreme Court has affirmed your entitlement to a tax credit or refund if two states withhold taxes on the same pay. This legal provision ensures protection against duplicate taxation, offering peace of mind to taxpayers.


In addition, reciprocity states offer numerous benefits that enhance professional mobility and simplify tax compliance for individuals and employers alike. Some notable advantages include:

  • Increased Workforce Mobility:

Reciprocity agreements dismantle barriers for professionals seeking employment in other states, promoting geographical flexibility and empowering individuals to seize job opportunities nationwide.

  • Streamlined Licensing and Certification Standards:

These agreements facilitate reliance on licensing and certification standards established by other states, reducing duplication of effort and resulting in substantial cost savings for professionals and state governments alike.

  • Attracting Residents and Retaining Job Opportunities:

Reciprocity agreements may help lower-tax states attract residents while aiding higher-tax states in retaining job opportunities. This harmonious arrangement promotes economic stability and benefits both individuals and states.

  • Employer-Friendly Tax Withholding:

For employers, state tax reciprocity agreements simplify tax withholding procedures. Companies are only required to withhold state and local taxes in the state where the employee lives.

DimovTax specialists can help you navigating the intricacies of state income tax reciprocity. With our expertise and commitment to excellence, we offer seamless assistance in filing exemption forms for residents in reciprocal states. By leveraging our services, you can optimize the advantages of reciprocity agreements while ensuring compliance and minimizing complexities. Contact DimovTax today and let us simplify your tax obligations, providing you with peace of mind and financial efficiency.

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