When you live in one state and work in another, the default rule is that your work state taxes the wages earned there and your home state taxes all your income as a resident. Without a mechanism to prevent it, that is double taxation. Three mechanisms protect against it: reciprocity agreements, credits for taxes paid to another state, and — occasionally — the absence of an income tax in one state. Knowing which applies to your situation determines whether you file one return or two.
The paycheck calculator models single-state withholding. If you work across state lines, see the salary comparison tool or consult a tax professional for cross-state filing.
Mechanism 1: Reciprocity Agreements
A reciprocity agreement between two states means you only owe income tax to your state of residence — not to the state where you physically work. Your employer withholds for your home state instead of the work state, so you typically file only one state return.
How to use it: Submit the appropriate nonresident exemption form to your employer (each state has its own form — for example, Indiana’s WH-47, Ohio’s IT-4NR, or Kentucky’s 42A809). Your employer then stops withholding for the work state and starts withholding for your home state. If your employer has already withheld for the work state during the year, you file a nonresident return claiming a refund.
Reciprocity agreements in effect for 2026 (verify current status with each state’s revenue department before relying on this list, as agreements can change):
| Work State | Reciprocal Home States |
|---|---|
| Illinois (IL) | IA, KY, MI, WI |
| Indiana (IN) | KY, MI, OH, PA, WI |
| Iowa (IA) | IL |
| Kentucky (KY) | IL, IN, MI, OH, VA, WV, WI |
| Maryland (MD) | DC, PA, VA, WV |
| Michigan (MI) | IL, IN, KY, MN, OH, WI |
| Minnesota (MN) | MI, ND |
| Montana (MT) | ND |
| New Jersey (NJ) | PA |
| North Dakota (ND) | MN, MT |
| Ohio (OH) | IN, KY, MI, PA, WV |
| Pennsylvania (PA) | IN, MD, NJ, OH, VA, WV |
| Virginia (VA) | DC, KY, MD, PA, WV |
| Washington DC (DC) | MD, VA |
| West Virginia (WV) | KY, MD, OH, PA, VA |
| Wisconsin (WI) | IL, IN, KY, MI |
Verify with official sources:
- Indiana DOR reciprocal agreements
- Kentucky DOR reciprocal agreements
- Michigan Treasury reciprocal agreements
- Ohio DOR reciprocal agreements
- Pennsylvania DOR reciprocal agreements
- Virginia Tax reciprocal agreements
- Wisconsin DOR reciprocal agreements
States without broad reciprocity: New York, New Jersey, Connecticut, California, and most other states do not have reciprocity agreements covering most state pairs. Workers in those situations use the credit mechanism below.
Mechanism 2: Credit for Taxes Paid to Another State
When reciprocity does not apply, your home state allows a credit on your resident return for income taxes you paid to the work state. The credit prevents most, but not always all, double taxation.
How it works:
- Your employer in State A withholds State A income tax on your wages.
- You file a nonresident return in State A, reporting only the income earned there.
- You file a resident return in State B (your home state), reporting your full income.
- On the State B return, you claim a credit for income tax paid to State A — typically the lesser of the State A tax paid or what State B would have charged on that same income.
Example — New Jersey resident, New York worker:
- New York withholds ~$3,723 in state income tax on $80,000 of wages.
- New Jersey, as the home state, imposes income tax on $80,000 of income at NJ rates.
- New Jersey allows a credit for the $3,723 paid to New York (up to the NJ tax on that income).
- Result: You pay the higher of the two states’ tax, not both. You do not pay both in full.
Credit limits: The credit is generally capped at what your home state would have charged on the same income. If you live in a lower-tax state and work in a higher-tax state, you owe the work state’s higher tax and the credit covers your home state liability entirely. If you live in a higher-tax state, you may owe some additional tax to your home state after the credit.
Mechanism 3: One State Has No Income Tax
If either your home state or your work state has no income tax, the cross-state tax situation simplifies:
- Work state has no income tax (e.g., you commute to Texas or Florida): Your work state withholds nothing in income tax. Your home state taxes your wages as resident income. You file only in your home state.
- Home state has no income tax (e.g., you live in Texas or Washington): Your work state withholds based on wages earned there. You file a nonresident return in the work state. No home-state return required (no income tax to file).
Note that even “no-income-tax” home states may still require returns for local taxes if your work city levies them.
The New York Convenience-of-the-Employer Rule
New York applies a convenience-of-the-employer rule that has become increasingly relevant with remote work. Under this doctrine, wages earned while working for a New York-based employer are treated as New York-source income — even if you physically work from another state — unless the out-of-office arrangement is a “necessity of the employer.”
What “necessity” means: The work must genuinely require being outside New York, not merely be allowed or preferred by the employee. Working from home in New Jersey because it is convenient for you, while your employer has a New York office you could use, generally does not satisfy the necessity test. The New York Department of Taxation and Finance applies this strictly.
Practical result: A New Jersey resident who works entirely from home for a New York employer may owe New York state income tax on their full salary. They would then claim a New Jersey credit for the New York tax paid. Total tax burden approaches the higher of the two states’ rates, not both added together.
States with similar rules: Delaware has also applied a sourcing rule that can reach out-of-state remote workers. Nebraska and Pennsylvania have their own sourcing approaches. New York’s rule is the most widely litigated and the one most employees encounter. (NY Department of Taxation and Finance — Telecommuter FAQ)
If you believe your remote arrangement qualifies as an employer necessity, document it carefully and consult a state tax professional before stopping New York withholding.
Part-Year Residents
If you moved between states during the year, you are a part-year resident in each state. Each state taxes the income earned while you were a resident there, plus any state-source income (from property or business in that state) earned during the nonresident period. File a part-year return in each state. Most tax software handles this, but the allocation between states can be complex for variable compensation like bonuses, stock vesting, or deferred compensation.
Practical Steps
- Determine your state pair. Look up whether a reciprocity agreement exists between your home and work states using the official state revenue links above.
- If reciprocity applies: Submit the exemption form to your employer immediately. Request a refund of any work-state tax already withheld by filing a nonresident return showing zero liability.
- If no reciprocity: Confirm your employer is withholding for the work state. Plan to file both a nonresident (work state) and a resident (home state) return. Estimate the credit you will receive to avoid surprises at filing.
- If you work remotely for a NY employer: Get a written assessment from a tax professional before assuming no NY withholding is required.
- If local taxes apply: Check both your home city and your work city for local income taxes — credits and reciprocity at the local level vary.
See Local Income Taxes Explained for how local taxes interact with the state picture.