As tax season approaches, it`s important to understand the intricacies of state income tax reciprocal agreements. These agreements, also known as reciprocity agreements, exist between certain states and allow residents who work across state lines to only pay income tax in their state of residency.
For example, if you live in Pennsylvania but work in New Jersey, you would only have to pay Pennsylvania state income tax under the reciprocal agreement between the two states. This can be a major benefit for those who live near state borders and commute for work.
Currently, there are 17 states that have some form of reciprocal agreement in place for state income tax. These include:
– Arizona and California
– Illinois and Iowa
– Indiana and Kentucky
– Maryland, Pennsylvania, and Virginia
– Michigan and Wisconsin
– Minnesota and North Dakota
– Montana and North Dakota
– New Jersey and Pennsylvania
– New Mexico and Colorado
– Oregon and Idaho
– Virginia and the District of Columbia
It`s important to note that even with a reciprocal agreement in place, residents may still need to file tax returns in both states and claim a credit for taxes paid to the non-resident state. Additionally, not all income types may be covered under the agreement, so it`s important to check with your state`s tax authority for more information.
It`s also worth noting that some states have temporarily suspended their reciprocal agreements due to the COVID-19 pandemic. For example, the agreement between Wisconsin and Minnesota has been suspended for 2020, meaning residents who normally rely on the agreement may be subject to double taxation this year.
As always, it`s essential to consult with a tax professional or use reputable tax software to ensure accurate reporting and compliance with state laws.
In conclusion, state income tax reciprocal agreements can be a valuable benefit for residents who work across state lines. However, it`s important to understand the specifics of each agreement and any potential changes that may impact taxes owed. Stay informed and stay on top of your tax obligations to avoid any surprises come tax time.