Reciprocal tax treaties allow residents of one state to work in other states without being deprived of taxes on their wages for that state. They would not need to file non-resident state tax returns there, as long as they follow all the rules. You can simply make a necessary document available to your employer if you work in a state in your home country. When a Michigan resident mistakenly withheld a reciprocal state`s income tax on wages earned there, it is the michigan resident`s responsibility to file a non-resident tax return with that state in order to obtain a refund of the withheld tax in error. Reciprocity agreements mean that two states allow their residents to pay taxes only where they live, not where they work. This is particularly important, for example, for people with higher incomes who live in Pennsylvania and work in New Jersey. Pennsylvania`s top tax rate is 3.07%, while New Jersey`s maximum tax rate is 8.97%. 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. Employees who work in D.C. but do not live there do not need to have an income tax D.C.
Why? D.C. has a tax reciprocity agreement with each state. 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. In addition, Indiana is a member of the State Authorization Reciprocity Agreement (SARA). SARA is a voluntary agreement between its member states and the US territories that sets comparable national standards for the intergovernmental provision of distance learning courses and programmes. The aim is to make it easier for students to take online courses taught by higher education institutions in another country.
Employees who work in Kentucky and live in one of the reciprocal states can submit Form 42A809 to ask employers not to withhold income tax in Kentucky.