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Overview: Reciprocity is one type of multi-state tax rule that can affect payroll. In most cases, if an employee lives and works in the same state, taxes are easy to calculate—there’s no special action needed. However, when an employee lives in one state but works in another, things get more complex. That’s when multi-state tax rules, like reciprocity agreements, come into play to determine which state’s taxes should be withheld.

Instructions:

What is Reciprocity?

Reciprocal States Table

Reciprocity exists when both the work and home state have a reciprocal agreement with each other, which allows the employee to elect to have taxes withheld only for their home state. No tax is withheld for the work state. With reciprocity, employees have to “opt-in” to having these taxes withheld.

Most states that recognize reciprocity require employees to complete a form, usually a nonresident certificate, that signifies to the employer that they have agreed to have taxes withheld only for their home state. (These forms should be collected and retained by the employer to stay in compliance.) In addition, the employer must register for a withholding ID number in the resident state, if they haven’t already done so.

It is unlikely that current reciprocity agreements between states will change or that new ones will be established. However, Buddy Punch will continue to track legislative updates and make adjustments as necessary.

Currently, there are only 16 states (plus D.C.) that recognize reciprocity. The table below details each state and their reciprocal state(s):

*Arizona does not have true reciprocity but has a similar agreement with 4 states.