You do not pay taxes twice on the same money, even if you do not live or work in any of the states with reciprocal agreements. You just have to spend a little more time preparing several state returns and you have to wait for a refund for taxes that are unnecessarily withheld from your paychecks. If the worker`s state of work has a lower tax rate from the state than its home state, it owes more to its country of origin at the time of taxation. If the worker`s state of work has a higher public income tax than his home state, he must wait for a refund. Employees working in Virginia can complete and submit the VA-4, Personal Exemption Worksheet form. If an employee lives in one state but works in another, he or she may be subject to additional payroll taxes. An exception is made when both states have agreements on fiscal reciprocity. In short, it is an agreement that both states have that reduces the tax burden on these workers. Reciprocity agreements mean that the worker pays taxes only in the state where he or she resides. Use our chart to find out which states have mutual agreements. And find out what form the employee needs to fill to keep you out of their home state: if an employee who lives in one state and works in another starts working for you, you can automatically start collecting taxes for the state of employment.
If you keep taxes for the state of work and not for the state of residence, the worker must pass on quarterly taxes to his country of origin. A reciprocal agreement is a special tax system between two states. When two states enter into the agreement, they allow residents of one state to apply for exemption from withholding tax in another state. For example, if an employee lives in Ohio and works in Indiana, that employee may ask his company not to withhold state taxes in Indiana. You can apply using form WH-47. Keep in mind that the opposite is true. If an employee lived in Indiana and worked in Ohio, they could also ask the employer not to withhold the IT-4NR form. In both scenarios, the employee then submits a W-2 form to the tax time in the resident.
It is important to note that employers are not required to meet any of the above requirements. It is important to know whether the employer has a tax identifier in that state. For example, if the Ohio employer does not yet do business in Indiana, it probably would not have a tax identifier in that state. Without a tax identifier, the employer cannot transfer taxes to the state. It is up to the employer to decide whether an Indiana tax ID should be put in place. This is why the transfer of the territorial tax is sometimes referred to as “polite restraint”. Everyone heard the saying: “You scratch my back, I scratch yours.” When these agreements are concluded between states, we call them reciprocal agreements in the payroll. In other words, “You take my tax, I take yours.” Before we look at this issue, it is important to understand a fundamental rule of government taxation.