Let’s talk reciprocals.
Reciprocity agreements mean that two states allow its residents to only pay tax on where they live—instead of where they work. For instance, this is particularly important to higher wage earners who live in Pennsylvania and work in New Jersey. Pennsylvania’s top rate is 3.07%, while New Jersey’s top rate is 8.97%.
The following states have reciprocal agreements:
| State | Reciprocity States |
| Arizona | California, Indiana, Oregon and Virginia |
| Illinois | Iowa, Kentucky, Michigan and Wisconsin |
| Indiana | Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin |
| Iowa | Illinois |
| Kentucky | Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin |
| Maryland | Pennsylvania, Virginia, Washington, D.C. and West Virginia |
| Michigan | Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin |
| Minnesota | Michigan and North Dakota |
| Montana | North Dakota |
| New Jersey | Pennsylvania* |
| North Dakota | Minnesota and Montana |
| Ohio | Indiana, Kentucky, Michigan, Pennsylvania and West Virginia |
| Pennsylvania | Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia |
| Virginia | Kentucky, Maryland, Pennsylvania, Washington, D.C. and West Virginia |
| Washington, D.C. | Maryland and Virginia |
| West Virginia | Kentucky, Maryland, Ohio, Pennsylvania and Virginia |
| Wisconsin | Illinois, Indiana, Kentucky and Michigan |
*After nearly forty years, the reciprocity agreement between New Jersey and Pennsylvania will end on December 31, 2016. On September 2, 2016, New Jersey Governor Chris Christie signed a deal to terminate the agreement effective January 1, 2017, in a move that some believe may generate $180 million in additional revenue for New Jersey. This means that—for the first time since 1978—wealthy taxpayers who work in New Jersey, but live in Pennsylvania, will pay substantially higher income taxes.
This topic may get revisited, but it’s a good idea to keep watching for updates.
