Reciprocal Tax Agreements between States

Reciprocal tax agreements between states can be confusing for individuals who work in one state but live in another. Essentially, these agreements allow residents of one state to work in another state without having to pay income tax to both states.

These agreements are only in place between certain states, so it’s important to check whether your states have a reciprocal tax agreement before assuming you won’t have to pay income tax. The agreement may also have specific restrictions, such as only applying to certain types of income or having a maximum income threshold.

For example, New Jersey has reciprocal tax agreements with Pennsylvania, Delaware, and New York. This means that if you live in New Jersey but work in one of these states, you’ll only have to pay income tax in New Jersey. However, if you work in a state that doesn’t have a reciprocal tax agreement with New Jersey (such as Connecticut), you’ll have to pay income tax to both states.

Reciprocal tax agreements are especially beneficial for those who live close to a state border and can easily commute to work in another state. They can also be useful for employers who have employees living in one state but working in another, as it can simplify payroll and tax withholding.

It’s important to note that if you work remotely for a company based in another state, a reciprocal tax agreement may not apply. In this case, you may have to pay income tax to both your state of residence and the state where your employer is based.

In summary, reciprocal tax agreements between states can provide relief for individuals and employers who work across state lines. However, it’s important to research and understand the specific agreements in place between your states to avoid any surprises come tax season.