A state tax reciprocity agreement is a deal between two states that lets residents of one state work in the other while paying income tax only to their home state. Instead of withholding for the state where you work and sorting out a credit later, your employer withholds for the state where you live.
Reciprocity isn't automatic. You usually have to tell your employer you qualify, and the agreement only covers certain income. Here is how a reciprocity agreement works, which well-known pairs exist, and what it changes on your paycheck.
What a reciprocity agreement does
Without an agreement, a commuter's wages can be taxed by two states: the work state taxes the wages earned there, and the home state taxes all your income but usually gives a credit for the other state's tax. That often means filing two returns and paying roughly the higher of the two states' taxes. Our guide to living in one state and working in another walks through that process.
A reciprocity agreement removes the work state from the picture for wages. In practice:
- Your employer withholds income tax for your home state, not the work state.
- You generally file only a resident return in your home state.
- You pay your home state's tax rate on those wages, whether it's higher or lower than the work state's.
Which states have reciprocity agreements
Reciprocity agreements are mostly between neighboring states in the Midwest and Mid-Atlantic, where cross-border commuting is common. Two well-known examples:
| State | Has reciprocity with |
|---|---|
| Pennsylvania | New Jersey (among others) |
| Illinois | Iowa, Kentucky, Michigan and Wisconsin |
Several other states have agreements with one or more neighbors, and agreements can be added or ended. Before relying on one, confirm it with the revenue departments of both your home state and your work state.
States where reciprocity doesn't matter
If either state has no wage tax, there's nothing to reciprocate. The nine states without a wage tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. If you live in one of them and work in a taxing state, you pay the work state. If you live in a taxing state and work in one of them, you pay your home state.
How to claim reciprocity with your employer
- Confirm the agreement. Check that your home state and work state have one in effect.
- File the exemption form. The work state typically has a certificate of nonresidence or withholding exemption form. You give it to your employer, not the state.
- Set up home-state withholding. Ask payroll to withhold for your home state. Many employers do this automatically once they have the form; if yours can't, you may need to make estimated payments to your home state.
- Check your first pay stub. Make sure the work state's income tax is gone and your home state's tax appears.
If your employer withheld for the work state before you filed the form, you can usually get that back by filing a nonresident return in the work state. Our guide to state income tax withholding explains how state withholding is set up.
Worked example 1: Pennsylvania resident working in New Jersey
Take a single Pennsylvania resident earning $68,000 at a New Jersey job, paid biweekly (26 paychecks), contributing 6% to a 401(k). Federal withholding ($211.17), Social Security ($162.15) and Medicare ($37.92) per paycheck are the same either way. Here is the state income tax:
| State income tax | Per paycheck | Per year |
|---|---|---|
| Pennsylvania (withheld under reciprocity) | $80.29 | $2,088 |
| New Jersey (for comparison) | $76.35 | $1,985 |
| Pennsylvania local earned income tax at an illustrative 1% | $26.15 | $680 |
Under reciprocity, this worker pays Pennsylvania's 3.07%. Pennsylvania's tax is slightly higher here than New Jersey's would be, partly because Pennsylvania taxes 401(k) contributions and allows no standard deduction or exemption. Reciprocity simplifies filing, but it doesn't always lower your tax.
Reciprocity also doesn't cover local taxes. This worker may still owe a Pennsylvania local earned income tax, shown here at an illustrative 1%. See our guide to the Pennsylvania local earned income tax for how it's set. All figures are estimates.
Worked example 2: Wisconsin resident working in Illinois
Now a single Wisconsin resident earning $58,000 at an Illinois job, paid biweekly with no pre-tax deductions.
| State income tax | Per paycheck | Per year |
|---|---|---|
| Wisconsin (withheld under reciprocity, estimate) | $68.11 | $1,771 |
| Illinois (if there were no agreement) | $104.85 | $2,726 |
Without reciprocity, this worker would pay Illinois's $2,726 and Wisconsin's credit would likely wipe out the Wisconsin tax on those wages, so the total would be close to the higher Illinois figure. With reciprocity, they pay only Wisconsin, about $955 less for the year. The Wisconsin figure uses the maximum standard deduction, which shrinks as income rises, so treat it as an estimate.
What reciprocity doesn't cover
- Non-wage income. Agreements generally cover wages and salaries. Income such as rental income from property in the work state or business income may still be taxed there.
- Local taxes. City and county wage taxes follow their own rules.
- Other payroll items. Unemployment, disability and paid leave contributions are separate programs and generally follow their own rules, often based on where you work.
- Remote work in a third state. If you work from somewhere else entirely, the agreement between your home and office states may not apply. See remote work and state income taxes.
To estimate your paycheck, run your home state in our paycheck calculator, since that's what you'll be withheld for. The Pennsylvania paycheck calculator, New Jersey paycheck calculator, Wisconsin paycheck calculator and Illinois paycheck calculator cover the examples above.
Frequently Asked Questions
Is a reciprocity agreement automatic?
No. You usually need to give your employer the work state's exemption form. Until you do, your employer may withhold for the work state.
Do Pennsylvania and New Jersey have reciprocity?
Yes. A Pennsylvania resident working in New Jersey, or a New Jersey resident working in Pennsylvania, generally pays wage income tax only to their home state.
Does reciprocity mean I pay less tax?
Not always. You pay your home state's rate, which may be higher or lower than the work state's. Its main benefit is simpler withholding and filing.
What if my states don't have an agreement?
You'll typically pay the work state on wages earned there and claim a credit on your home-state return for that tax.
Sources
- Tax Foundation: State Individual Income Tax Rates and Brackets, 2026
- IRS Publication 505, Tax Withholding and Estimated Tax
- IRS: Estimated Taxes
Run the numbers for your state
Written and checked against IRS, Social Security Administration and state tax agency publications for the 2026 tax year. General information, not tax, legal or financial advice. Read our editorial policy, calculation methodology and sources.