State tax reciprocity agreements in the United States: 2026

Does this employee’s income get taxed in one state or two?

We’ve seen this confuse US founders, finance teams, and global companies hiring across state lines.

Hiring happens fast.
Payroll gets set up.
Taxes are withheld.
Everything looks fine. Until tax season hits.

State tax reciprocity helps employees avoid double taxation when they live in one state and work in another. In these cases, income tax is paid only to the home state.

The issue isn’t complexity.
It’s assuming reciprocity applies everywhere, or that payroll gets it right by default.

This article breaks down how state tax reciprocity actually works, which states have agreements, when they apply, when they don’t, and the mistakes that trigger double withholding, refunds, and compliance cleanups later.

What is State Tax Reciprocity?[toc=State Tax Reciprocity]

State tax reciprocity refers to an agreement between two or more states that allows employees to pay taxes only in their state of residence, even if they work in a different state.

Essentially, if you live in one state and work in another, you won't be double-taxed by both states. Instead, the state where you live will typically give you a credit for taxes paid to the state where you work, ensuring you're not taxed twice on the same income.

A Simple Real-World Example

Take Maria. She lives in Philadelphia, Pennsylvania, and commutes across the river to work in Camden, New Jersey.

Because Pennsylvania and New Jersey have a reciprocity agreement, Maria’s employer withholds Pennsylvania state tax, not New Jersey tax. She files a single state tax return and pays taxes only in her home state.

If that reciprocity didn’t exist, her employer would withhold New Jersey tax instead, and Maria would then have to reconcile everything later when filing her Pennsylvania return. More paperwork. More room for errors. More frustration.

That’s the practical impact of state tax reciprocity when it’s set up correctly.

As per Tax Foundation, there are currently 30 state tax reciprocity agreements in the U.S., spanning 16 states plus the District of Columbia. These agreements form corridors mainly from the Mid-Atlantic through the Midwest to parts of the Mountain West.

Types of State tax reciprocity agreements

Reciprocity agreements come in two main forms, depending on how states choose to handle cross-border taxation.

Bilateral Agreements

Bilateral agreements are mutual arrangements between two states. Under these agreements, employees pay state income tax only to their state of residence, even though they work across state lines.

For example, a Pennsylvania resident working in New Jersey pays income tax only to Pennsylvania. New Jersey does not withhold or tax those wages. Most state tax reciprocity agreements in the U.S. follow this bilateral model.

Unilateral Agreements

Unilateral arrangements occur when one state chooses not to tax non-resident wages, without requiring the other state to offer the same treatment in return.

A common example is Washington, D.C., which does not tax wages earned by non-residents. In this case, the employee still pays income tax only to their home state, but the relief comes from D.C.’s policy, not a two-state agreement. Other states, notably Indiana , offer reciprocity to any state that does the same for them.

We’ve seen what state tax reciprocity is, how it plays out in real life, and the two ways states handle it. Now let’s get into the part that actually matters: which states have reciprocity agreements.

What state-by-state reciprocity agreements exist in 2026?[toc=States with Reciprocity Agreements]

From running multi-state payroll setups, we know how critical it is to identify which states honor reciprocity before processing employee withholdings.

Here’s the full list of states with reciprocity agreements and the exemption forms employees must file:

Source: Tax Foundation

These agreements help reduce the tax burden for workers by ensuring they are only taxed in their state of residence. Now let's explore which states do not require income tax for non-resident state employees working there.

How is state tax withheld in states without reciprocity agreements?[toc=States without Reciprocal Agreements]

With our expertise in handling payroll and tax compliance globally, here’s what happens when there is no reciprocity agreement between states.

When two states don’t have a state tax reciprocity agreement, the withholding and filing rules change. Only 16 states plus the District of Columbia have active reciprocity agreements that let you pay state income tax only to your home state.

In the other 34 states, the process works like this:

• Your employer withholds income tax for the state where you work.
• You still need to pay state taxes in your state of residence and must file a resident return there.

Most states offer income tax credits on the resident tax return for income taxes paid to another state when no reciprocity exists. This ensures you’re not taxed twice on the same income, while still forcing you to file in both states.

This isn’t just theory. U.S. tax rules prohibit multiple states from taxing the same income without providing relief such as a credit, largely due to constitutional case law affirming that relief requirement.

Which states do not have income tax for non-resident employees?[toc=States With No Income Tax]

Our experience guiding companies supporting cross-border workers shows that no-income-tax states can still create payroll and reporting complexities.

If an employee works in a state with no state income tax but lives in another state, there is no income tax filing or withholding requirement in the work state. However, the employee must still file and pay state income tax in their state of residence, since residency determines tax liability.

The states that have no state income taxes are as follows:

1. Alaska
2. Florida
3. Nevada
4. New Hampshire
5. South Dakota
6. Tennessee
7. Texas
8. Washington
9. Wyoming

Do state reciprocity agreements apply to remote workers?[toc=Remote Workers Applicability]

State reciprocity agreements can apply to remote workers, allowing them to pay state and local taxes only to their state of residence, not the state where their employer is located.

However, this only works when a specific reciprocity agreement exists between the two states, and it usually requires the employee to submit a tax exemption form (such as Form WEC or MI-W4) to prevent double withholding.

That said, reciprocity is not universal. If no agreement exists, taxes are generally owed based on physical work location, meaning the work state may tax the income first, while the home state taxes it as well, offering relief later through a tax credit.

Some states also apply the “convenience of the employer” rule, where remote work is still taxed by the employer’s state even if the employee never physically works there, overriding normal reciprocity logic.

In practice, remote workers must actively verify their state pair and take action. This includes confirming whether reciprocity applies, filing the correct exemption forms with their employer, and understanding when multi-state filings are unavoidable.

Read more: "Remote Team Management: 22 Best Practices, Tips & Tools 2026".

How do state tax reciprocity agreements benefit employers?[toc=Benefits for Employers]

With our hands-on experience helping companies with payroll operations and multi-state tax compliance, here are the key ways state tax reciprocal agreements benefit employers managing cross-border and remote workforces.

• Simpler payroll processing: Reciprocity allows employers to withhold state income tax based on the employee’s state of residence instead of the work state. This reduces payroll complexity and lowers the risk of incorrect or duplicate withholdings.
• Smoother remote and cross-state hiring: As remote and hybrid work become the norm, hiring employees across state lines is unavoidable. Reciprocal tax agreements remove tax friction, making it easier to onboard employees who live in different states without reworking payroll setups.
• Clearer state tax compliance: When reciprocity applies, employers withhold and remit taxes to only one state for each employee. This streamlines compliance and avoids the need to manage multi-state withholding for the same wages.
• Broader access to talent: Candidates are more willing to accept roles across state lines when they know they won’t face complex filings or double taxation. This gives employers access to a wider, more flexible talent pool and speeds up hiring decisions.

From what we’ve seen in practice, reciprocal state rules can meaningfully reduce payroll friction when set up correctly.

To get the full benefit and avoid missteps, it’s best to follow proven best practices and consult a qualified tax professional to stay compliant with changing state tax laws.

What are the best practices for employers managing reciprocal agreements?[toc=Best Practices]

Based on our experience helping companies with payroll operations and multi-state tax compliance, here are the best practices employers should follow when managing reciprocal agreements.

• Apply the correct state tax withholding: Employers should withhold state income tax based on the employee’s state of residence when reciprocity applies, and the work state when it doesn’t. This applies equally to U.S. companies and international employers with employees based in the U.S.
• Set clear expectations with employees: Employees should be informed upfront about whether a reciprocity agreement covers their situation. This helps them prepare for state tax filings and ensures required tax exemption or withholding forms are submitted on time.
• Maintain accurate registration and payroll records: Depending on the employee’s work and residence states, employers may need to register with one or more state tax authorities. Keeping clean records supports accurate filings and reduces issues during audits or tax reviews.

Forget your tax worries with Wisemonk[toc=How Wisemonk Helps]

Taxes are complicated on their own, and they get even harder when your team is spread across states or countries, each with its own payroll and compliance rules.

With Wisemonk, companies manage cross-border hiring, payroll, and compliance through a single platform. We are the Employer of Record (EOR), responsible for employing talent on your behalf and handling everything from state-level tax compliance to international employment requirements.

Whether you’re hiring across U.S. states or building teams globally, we simplify onboarding, payroll processing, and employee payments through compliant contracts, accurate tax calculations, and clear workflows. The result is faster hiring, fewer compliance gaps, and payroll that runs the way it should.

If you’d like to see how this works in real situations, you can connect with the Wisemonk team to walk through practical use cases and day-to-day operations.