Employees can apply for a state income tax exemption by completing Form NJ-165, Certificate of Non-Residence of the Employee in New Jersey. Virginia has reciprocity with the District of Columbia, Kentucky, Maryland, Pennsylvania, and West Virginia. Submit the VA-4 exemption form to your Virginia employer if you live and work in one of these states. Again, a credit agreement means that the employee`s home state grants him a tax credit for the payment of state income tax to his state of work. For example, in 2016, a year-round Illinois resident works year-round in Munster, Indiana (Lake County). The employer is required to withhold Indiana State income tax on the employee`s wages at the Indiana State Legal Income Tax rate of 3.30% plus the applicable Indiana County (Lake County) income tax rate for wages earned. The employee is required to file the Indiana FORM IT-40PNR, including the CT-40PNR “County Tax Schedule for Part-Year and Full-Year Indiana Nonresidents”. The employee would also disclose the applicable credit for taxes paid to Indiana on his respective Illinois tax return (IL-1040). The reciprocity rule applies to employees who must file two or more state tax returns – a resident return in the state where they live and a non-resident tax return in other states where they might work so that they can recover any taxes that have been wrongly withheld. In practice, federal law prohibits two states from taxing the same income. Collect Form IT 4NR, Declaration of Employee Residency in a Mutual State to end Ohio income tax withholding. Does your employee work in North Dakota and live in Minnesota or Montana? If the answer is yes, they can complete Form NDW-R, Exemption from Reciprocity from Withholding Tax for Qualified Residents of Minnesota and Montana Who Work in North Dakota, for Tax Reciprocity. If your employee works in Illinois but lives in one of the mutual states, they can file Form IL-W-5-NR, Declaration of Employee Non-Residency in Illinois, for Illinois Income Tax Exemption.

At the end of the year, use Form W-2 to tell the employee how much you withheld for state income tax. First, the employer must register with the Indiana Department of Revenue and state unemployment agencies. An employer must withhold Indiana State income tax as well as Indiana County tax on the wages of its employees, unless the employee resides in a state that has a reciprocal agreement with Indiana. Indiana has reciprocal agreements with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin for the collection of personal income tax for non-residents employed in Indiana, Indiana. These reciprocal agreements provide that Indiana does not levy an adjusted gross income tax on wages and salaries earned by legal residents of mutual states working in Indiana. Because of these reciprocal agreements, Indiana employers are not required to withhold Indiana personal income tax from eligible non-residents under the Reciprocity Act, but are still required to withhold local county income tax at the non-resident rate. To claim an income tax exemption for the State of Maryland, qualified employees must complete Form MW507, Employee`s Maryland Withholding Exemption Certificate. States that are signatories to reciprocal agreements have what is called fiscal reciprocity among themselves, which alleviates this problem. Montana has tax reciprocity with North Dakota. North Dakota residents who work in Montana can apply for an exemption from Montana state income tax withholding.

Instead of a double withholding tax and taxation, the employee`s country of origin can credit him with the amount retained for his state of work. However, keep in mind that an employee`s state of residence and employment may not charge the same state income tax rate. Indiana has reciprocity with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin. Submit the WH-47 exemption form to your Indiana employer. Kentucky has reciprocity with seven states. You can file Exemption Form 42A809 with your employer if you work here but are located in Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin. However, Virginia residents must travel daily to qualify, and Ohio residents cannot be shareholders of 20% or more in an S-Chapter company. Ohio has tax reciprocity with the following five states: Employees residing in one of the mutual states can file Form WH-47, Certificate Residence, to claim an exemption from Indiana state income tax withholding. Reciprocity between States does not apply everywhere. An employee must live and work in a state that has a tax reciprocity agreement.

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