If you work in one state but live in another, figuring out your tax obligations can get complicated. Fortunately, many states have reciprocal tax agreements in place that can simplify the process.
Reciprocal tax agreements, also known as reciprocal agreements or reciprocal state agreements, allow residents of one state to work in another state without having to pay income taxes in both states. Instead, you only have to pay taxes in your home state. This can save you time and money, as you don`t have to file multiple state tax returns or pay taxes in both states.
Not all states have reciprocal tax agreements, however. As of 2021, there are 17 states with reciprocal tax agreements in place. Here is a list of those states:
1. Arizona
2. Indiana
3. Kentucky
4. Illinois
5. Michigan
6. Minnesota
7. Montana
8. New Jersey
9. North Dakota
10. Ohio
11. Oregon
12. Pennsylvania
13. Virginia
14. West Virginia
15. Wisconsin
16. Maryland (with some limitations)
17. Washington, D.C. (with some limitations)
It`s important to note that even if your state has a reciprocal tax agreement with another state, you may still need to file tax returns in both states. This is especially true if you earn income from other sources, such as rental properties or freelance work. It`s always a good idea to consult with a tax professional to ensure you are meeting all of your tax obligations.
In addition to reciprocal tax agreements between states, there are also agreements in place between certain cities. For example, New York City and Yonkers have agreements with several nearby cities in Connecticut and New Jersey. Again, it`s important to consult with a tax professional to ensure you are meeting all of your tax obligations.
In conclusion, if you work in one state but live in another, it`s important to be aware of any reciprocal tax agreements that are in place. This can save you time and money, and ensure that you are meeting all of your tax obligations. Be sure to consult with a tax professional if you have any questions or concerns about your tax situation.