State Income Taxes Reciprocity Agreements

State Income Taxes Reciprocity Agreements: What You Need to Know

Are you someone who lives in one state and works in another? If so, understanding state income taxes reciprocity agreements is important to avoid paying double taxes.

Reciprocity agreements are agreements between states that allow residents of one state to work in another state without having to pay income taxes to both states. These agreements simplify tax filing for those who work across state lines, as they only need to file income tax returns in their resident state. This can save taxpayers time and money.

Currently, there are 17 states in the United States that have reciprocity agreements with each other. These states include:

– Illinois

– Indiana

– Iowa

– Kentucky

– Maryland

– Michigan

– Minnesota

– Montana

– New Jersey

– North Dakota

– Ohio

– Pennsylvania

– Virginia

– West Virginia

– Wisconsin

– Washington DC

– Kansas and Missouri have a partial reciprocity agreement in which Kansas residents who work in Missouri do not have to pay Missouri income tax, but Missouri residents who work in Kansas must still pay Kansas income tax.

It`s important to note that reciprocity agreements only apply to earned income, such as wages and salaries. Other types of income, such as interest or dividends, may still be subject to taxation in both the resident and work state.

If you work in a state that does not have a reciprocity agreement with your resident state, you may be required to file income tax returns in both states. However, you may be able to claim a credit in your resident state for taxes paid to your work state.

In conclusion, understanding state income taxes reciprocity agreements is crucial if you work across state lines. Ensure that you know the rules of the states you work in to avoid double taxation. It`s also recommended to consult a tax professional for guidance on filing taxes in multiple states.