Multi-state tax and reciprocity guide
Living in one state and working in another? Moving? Running a business in several states? Here is how multi-state taxes work, in plain English.
The basics
- Residency decides a lot. A resident is generally taxed on all income. A nonresident is taxed only on income from sources in that state. A part-year resident is both for part of the year.
- Where income is sourced. Wages are generally sourced where the work is performed. Rental income is sourced where the property is. Business income is split between states using apportionment formulas, usually based mostly on sales.
- Avoiding double tax. Your home state usually gives a credit for income tax paid to another state on the same income.
- Reciprocity. A few neighboring states agree not to tax each other's commuters (table below).
- Remote work. Where you sit when you work can matter, and a few states tax by employer location. Track your days by state.
For business owners
- Income tax nexus. Selling only goods into a state is protected by federal law (P.L. 86-272) in some cases, but services, employees and property create nexus.
- Sales tax nexus. After the Wayfair decision, states can require remote sellers to collect sales tax once they pass a sales threshold (commonly $100,000), even without a physical presence.
- Payroll. Employees working in a state generally need withholding and unemployment insurance registration there, and local registrations in some cities.
- Pass-through owners. Owners of S corporations and partnerships may owe nonresident tax on their share, and many states offer an elective entity-level tax (PTET) or require composite returns.
- Registration. A company formed in one state but operating in another often must register as a "foreign" entity there.
Wage reciprocity between states
If you live in one of these states and work in a partner state, you generally pay income tax only to your home state on your wages. Agreements are often one-directional and cover wages only, so confirm before you change withholding.
"Convenience of the employer" states: Connecticut, Delaware, Nebraska, New Jersey, New York, Pennsylvania. These can tax remote workers who are employed by a company based in the state.
Common questions
What is a reciprocity agreement?
An agreement between two states that lets a resident of one state who works in the other pay income tax only to the home state. The employee usually gives the employer an exemption form so the work state does not withhold.
I live in one state and work in another with no reciprocity. Do I pay tax twice?
Normally not. You file a nonresident return in the work state and your home state gives you a credit for tax paid to the work state, so you effectively pay the higher of the two rates. The details and limits vary.
How is a "resident" defined?
Most states tax you as a resident if your permanent home (domicile) is there, or if you keep a home there and spend more than 183 days in the state (statutory residency). Moving your home state on paper without moving your life rarely works.
I moved during the year. What do I file?
Part-year resident returns in both states, each taxing the income earned or received while you were a resident, plus any income from sources in the state before or after.
Does working from home across state lines change my taxes?
It can. Some states apply a "convenience of the employer" rule that taxes remote work for an employer based in the state. Other states tax only the days physically worked there. Keep a log of where you work.
When does my business owe tax in another state?
When it has "nexus": enough connection through employees, property, sales or a physical presence. Rules differ for income tax, sales tax and payroll, and a business can have nexus in one but not the others.
General information only, for tax year 2026. Rates, forms and rules change and have many exceptions. Confirm with the state agency or contact us before you act.
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