State Reciprocity Agreements: A Complete Guide to Which States Have Them and How to Use Them

Every year, millions of Americans cross a state border to get to work. A teacher who lives in New Jersey commutes to a school in Pennsylvania. A software developer based in Virginia takes a remote role with a Washington D.C. firm. An accountant in Kentucky drives to an office in Ohio. Without a specific legal mechanism in place, each of these workers would owe income tax to two states simultaneously — the state where they live and the state where they work — and their employers would be required to withhold for both.

That mechanism is the state reciprocity agreement, and for HR departments managing employees who live in one state and work in another, understanding which agreements exist — and how to implement them correctly — is one of the most practically valuable pieces of multistate payroll knowledge available.

This guide covers what reciprocity agreements are, which state pairs currently have them, what they require of employers and employees, and where the gaps and complications are.

What a Reciprocity Agreement Is

A reciprocity agreement is a bilateral contract between two states that resolves the double-taxation problem for employees who live in one state and work in another. Under a reciprocity agreement, a covered employee pays income tax only to their state of residence — not to the state where they physically perform their work. The work state waives its claim to tax that employee’s wages.

From the employer’s perspective, a reciprocity agreement simplifies withholding considerably. Instead of calculating and remitting withholding to two states, the employer withholds only for the employee’s home state. The work state is effectively taken out of the equation for that employee.

Reciprocity agreements are negotiated directly between states and are entirely voluntary. There is no federal requirement that states enter into them, and no federal standard governing their terms. Each agreement is its own document with its own scope, covered tax types, and procedural requirements. This means that the existence of a reciprocity agreement between State A and State B tells you only that an agreement exists — the specific mechanics require consulting the agreement itself or the relevant state guidance.

The Current Reciprocity Landscape

As of 2026, reciprocity agreements exist between the following state pairs. Most agreements are bilateral — they cover residents of either state working in the other — but scope can vary, so each is worth verifying with the relevant state revenue departments.

A few of these agreements deserve specific note:

Arizona–California is notable given California’s aggressive enforcement posture on most tax matters. The reciprocity agreement carves out a meaningful exception for Arizona residents employed by California-based companies — a scenario increasingly common in the remote work era.

D.C.–Maryland–Virginia affects a large number of workers given the concentration of D.C. employers and the suburban Maryland and Virginia residential base. Many federal contractors and government-adjacent employers in the metro area rely heavily on this agreement.

New Jersey–Pennsylvania is one of the highest-volume agreements in the country given the density of cross-border commuters between the two states. It also has significant interactions with New Jersey’s convenience of employer rule and New York’s sourcing positions, discussed below.

Kentucky has one of the broadest reciprocity networks in the country with seven partner states, making it an unusually well-covered state for employees who commute across its borders.

What Reciprocity Does Not Cover

Understanding the limits of reciprocity agreements is as important as knowing which ones exist. Several common misconceptions are worth addressing directly.

Reciprocity covers income tax only — not SUTA or other obligations

A reciprocity agreement between two states addresses state income tax withholding for covered employees. It does not eliminate the employer’s obligation to pay state unemployment insurance (SUTA) in the state where the employee works. An employer with a Pennsylvania resident working in New Jersey under the NJ–PA reciprocity agreement still owes New Jersey SUTA for that employee — only the income tax withholding obligation shifts.

This distinction matters for payroll configuration. Employers sometimes set up payroll for a reciprocity-covered employee as if the work state has no involvement whatsoever, then discover they’ve been missing SUTA payments for months or years.

Pennsylvania’s local EIT is not covered

Pennsylvania’s reciprocity agreements apply to state income tax. They do not apply to the local Earned Income Tax (EIT) levied by Pennsylvania’s municipalities and school districts. A Maryland resident working in Philadelphia, for example, may be covered by the Maryland–Pennsylvania reciprocity agreement for state income tax purposes — but Philadelphia’s local wage tax (3.75% for nonresidents as of 2024) still applies to wages earned within city limits.

This is a frequently overlooked point for employers with employees working in Philadelphia, Pittsburgh, or any of Pennsylvania’s other taxing municipalities.

New York has no reciprocity agreements

New York does not have a reciprocity agreement with any state. Combined with New York’s convenience of employer rule, this means that employees of New York employers working remotely from other states face some of the most complex income tax situations in the country. There is no reciprocity-based simplification available for New York — only the credit mechanism in the employee’s resident state, which may or may not fully offset the New York liability.

Reciprocity does not apply to self-employed individuals

Reciprocity agreements cover employees — specifically, wage income subject to employer withholding. Self-employed individuals, independent contractors, and business owners with income sourced to multiple states are not covered by reciprocity agreements and must navigate multistate taxation through other means, typically by filing nonresident returns in each state where income is sourced.

How to Implement Reciprocity: The Employee Certificate

Reciprocity agreements don’t apply automatically. To receive the benefit of a reciprocity agreement, the employee must take an affirmative step: submitting a certificate of nonresidence (sometimes called an exemption certificate or reciprocity exemption form) to their employer.

Each state has its own form for this purpose. The employee completes the form, certifies that they are a resident of the other reciprocity state, and submits it to their employer. The employer then withholds only for the employee’s home state and stops withholding for the work state.

Common certificate forms by state:

• Illinois: IL-W-5-NR
• Indiana: WH-47
• Kentucky: 42A809
• Maryland: MW507
• Michigan: MI-W4
• New Jersey: NJ-165
• Ohio: IT 4
• Pennsylvania: REV-419
• Virginia: VA-4
• Wisconsin: W-220

Employers should retain these certificates in employee files alongside other withholding documentation. If an employee’s state of residence changes — for example, if they move from a reciprocity-covered state to one that isn’t covered — they are required to notify the employer and submit new withholding documentation, and the employer must update withholding accordingly.

When Reciprocity Agreements Break Down: The New Jersey–Pennsylvania Example

The New Jersey–Pennsylvania reciprocity agreement illustrates how even well-established agreements can create complexity in the remote work era.

Under the agreement, a New Jersey resident working in Pennsylvania pays New Jersey income tax only. Straightforward enough in the traditional commuter context. But consider a New Jersey resident who works remotely from their New Jersey home for a Pennsylvania employer. Under the standard rule — absent any convenience doctrine — that employee’s wages are sourced to New Jersey as the place of physical performance, and the reciprocity agreement is largely redundant because New Jersey would be the taxing state anyway.

Now layer in a scenario where the same New Jersey resident works for a New York employer. New York’s convenience rule may source their wages to New York. The NJ–PA reciprocity agreement doesn’t help because New York isn’t a party to it. The employee may owe New York income tax on wages earned entirely within New Jersey, with their only recourse being a New Jersey resident credit for taxes paid to New York — a credit that depends on New Jersey’s credit rules and the relative tax rates.

These interactions are not hypothetical edge cases. They affect a substantial number of workers in the New York–New Jersey–Pennsylvania tri-state area, and they represent the kind of complexity that emerges when multiple overlapping state tax rules interact with the geographic reality of where people actually live and work.

Practical Guidance for HR and Payroll Teams

For HR departments and payroll administrators managing employees across multiple states, reciprocity agreements offer genuine administrative relief — but only if implemented correctly.

1. Collect certificates at onboarding. When a new employee is hired, determine whether they live in a state that has a reciprocity agreement with their work state. If so, provide the appropriate certificate form as part of onboarding documentation and collect it before the first payroll run. Don’t wait for the employee to ask — most employees aren’t aware the agreement exists.
2. Audit existing employees annually. Employee circumstances change. A review of withholding documentation once a year — ideally in the fourth quarter before the new tax year begins — catches situations where employees have moved, changed their work arrangement, or had a life event that affects their residency status.
3. Don’t eliminate work-state SUTA. As noted above, reciprocity covers income tax withholding only. Confirm that your payroll system is still calculating and remitting SUTA to the work state for reciprocity-covered employees.
4. Track certificate expiration. Some states require that reciprocity certificates be renewed periodically. Build a tracking mechanism into your HR system so that expired certificates don’t create a silent withholding gap.
5. Document everything. In the event of a state audit, the certificate of nonresidence is your documentation that you had a legitimate basis for not withholding work-state income tax. Without it, the work state can assert that withholding was required regardless of the reciprocity agreement.

Looking Ahead: The Reciprocity Landscape May Change

Reciprocity agreements are voluntary and can be terminated. In 2016, New Jersey announced it was terminating its reciprocity agreement with Pennsylvania — a move that would have affected hundreds of thousands of commuters — before reversing course following significant public and legislative backlash. The episode was a reminder that agreements employers and employees have come to rely on are not permanent fixtures of the tax landscape.

As state budgets face pressure and remote work continues to blur the lines between where people live and where they work, the reciprocity landscape will continue to evolve. HR and payroll teams should monitor their relevant state pairs for any changes to existing agreements and build flexibility into their compliance processes.