The Ultimate Guide to Reciprocal Tax States in 2025
If you live in one state but work in another, understanding reciprocal tax states can save you time, confusion, and potentially money. State tax reciprocity agreements allow employees to pay income tax only in their state of residence—even if they earn wages across state lines. These reciprocal state tax agreements are especially important for commuters, remote workers, and people who frequently cross state borders for employment.
In this comprehensive guide, we’ll break down what reciprocal tax states are, how state tax reciprocity works, and which states have tax reciprocity agreements in place for 2025. You’ll also find an updated state tax reciprocity chart, filing tips, and answers to frequently asked questions to help you avoid double taxation and claim the proper withholdings.
What Are Reciprocal Tax States and How Do They Work?
Reciprocal tax states are states that have formal agreements allowing residents to pay income taxes only in their state of residence, even if they work across state lines. These reciprocal state tax agreements are designed to eliminate double taxation—so employees don’t end up paying income taxes to two different states on the same earnings.
Understanding State Tax Reciprocity
State tax reciprocity only applies to earned income, such as wages and salaries—not to other forms of income like interest, dividends, or capital gains. When two states have a reciprocal agreement, employees can submit a form to their employer requesting that state income tax not be withheld for the state where they work.
Key Concepts Behind Reciprocal State Tax Agreements
You file taxes only in your home state.
You must submit a reciprocity form (often a withholding exemption) to your employer.
You may still owe local or city taxes depending on municipal laws.
Why Reciprocal Tax States Matter in 2025
As remote work, relocation, and state-to-state commuting increase, understanding tax reciprocity states becomes more crucial. Knowing where and how to file your taxes helps avoid overpaying, misfiling, or facing unexpected tax bills.
Avoiding Double State Taxation
Without proper knowledge of reciprocal states for taxes, workers may be taxed twice—once by their employer's state and once by their home state. Reciprocity prevents this by allowing taxation only where you live.
Better Withholding and Paycheck Accuracy
Using reciprocity agreements helps maximize take-home pay. When you submit the correct form, employers will withhold tax for your home state only, ensuring more accurate paychecks.
Full List of States with Tax Reciprocity
Several U.S. states currently have reciprocal tax agreements. These are most commonly found in the Midwest and East Coast.
Reciprocal Tax States by Region
Midwest Reciprocal Tax States
Illinois has agreements with IA, KY, MI, and WI.
Indiana has reciprocity with KY, MI, OH, PA, and WI.
Michigan has agreements with IL, IN, KY, MN, OH, and WI.
East Coast Reciprocity Agreements
Pennsylvania has agreements with IN, MD, NJ, OH, VA, and WV.
New Jersey only has a reciprocity agreement with Pennsylvania.
Western & Southern Agreements
Arizona has reciprocity with CA, IN, OR, and VA.
District of Columbia has reciprocity with all surrounding states.
2025 State Tax Reciprocity Chart
Here’s a quick-reference state tax reciprocity chart to help determine where reciprocity applies:
Always double-check with your state’s Department of Revenue, as agreements can change annually.
Easy Reference for Employees and Employers
Employers should keep this chart on hand to properly handle withholdings, and employees should use it to determine if they can file exemption forms.
How to File Taxes in Reciprocal Tax States
Filing in reciprocal tax states is straightforward if you follow the proper steps.
Filling Out the Correct Tax Reciprocity Form
Each state has its own reciprocity form. For example:
Illinois: IL-W-5-NR
Michigan: MI-W4
Indiana: WH-47
These forms tell your employer not to withhold state income tax for the state where you work.
Determining Which State Gets Withholding
Your state of residence typically receives the withholding. Make sure your W-4 reflects this and that you provide all required documentation to avoid issues.
Common Mistakes When Navigating State Tax Reciprocity
Even with agreements in place, it’s easy to make costly mistakes.
Choosing the Wrong State for Withholding
If you don’t submit the reciprocity form, your employer may withhold for the work state, leaving you to request a refund after tax season.
Not Submitting Reciprocity Forms on Time
Forms must be submitted at the beginning of employment or the new tax year. Late submissions might not be honored retroactively.
FAQs About Reciprocal Tax States
Can I Still Be Taxed Locally in a Reciprocal State?
Yes, local or city taxes may still apply, even when state-level reciprocity exists.
What Happens If I Work in a Non-Reciprocal State?
If your state does not have reciprocity, you’ll likely need to file tax returns in both states, with a credit claimed for taxes paid.
Final Thoughts on Reciprocal Tax States in 2025
Understanding and taking advantage of reciprocal tax states can simplify your tax responsibilities and increase your take-home pay—especially if you’re a commuter, remote worker, or multi-state employee. Use the latest state tax reciprocity chart, communicate with your employer, and file the proper forms early in the year to avoid complications.
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