Reciprocal agreements states refer to states in the US that have agreements with each other to exempt individuals from paying income tax in the state where they work if they reside in a different state. This can be a beneficial arrangement for workers who live and work in different states, as it can help them avoid double taxation.
Currently, there are nine US states that have reciprocal agreements with each other. These states include Pennsylvania, Maryland, Virginia, West Virginia, New Jersey, Delaware, Ohio, Indiana, and Michigan. Under these agreements, residents in these states who work in another participating state will only have to pay income tax in their state of residence.
For example, if a person who lives in Pennsylvania works in Maryland, they will only have to pay income tax in Pennsylvania, where they reside. The same applies to a person who lives in Virginia but works in West Virginia, or a person who lives in New Jersey but works in Delaware.
Reciprocal agreements states can be particularly beneficial for individuals who live near state borders and regularly commute to work in a neighboring state. Without these agreements, such individuals would have to pay income tax in both states, effectively being taxed twice on the same income.
It`s important to note that while reciprocal agreements can help workers avoid double taxation, they only apply to earned income, such as wages and salaries. Other forms of income, such as investment income and rental income, are still subject to taxation in the state where they are earned.
Overall, reciprocal agreements states can help ease the burden of tax responsibilities for individuals who live and work in different states. If you are unsure about your tax responsibilities under a reciprocal agreement, it`s best to consult with a tax professional or the tax authority in your state.