What is State Tax Reciprocity?

State income tax withholding is determined by comparing an employee’s work state and home state. If both states are the same, taxes are allocated accordingly without additional requirements. However, multi-state taxation applies when an employee's work and home states differ.

Reciprocity is a specific multi-state tax scenario where two states have an agreement allowing employees to have income tax withheld only for their home state. If an employee qualifies for reciprocity, no state tax is withheld for their work state.

Employees must opt-in to reciprocity and complete a nonresident certificate or similar form to authorize withholding only for their home state. Employers should collect and retain these forms for compliance. Additionally, employers must register for a withholding identification number in the employee’s home state if they have not already done so.

---

States with Reciprocal Tax Agreements

Currently, 16 states and Washington, D.C. recognize reciprocity agreements.

State	Reciprocal States
California	Arizona*
District of Columbia	Maryland, Virginia
Illinois	Iowa, Kentucky, Michigan, Wisconsin
Indiana	Arizona*, Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin
Iowa	Illinois
Kentucky	Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin
Maryland	District of Columbia, Pennsylvania, Virginia, West Virginia
Michigan	Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin
Minnesota	Michigan, North Dakota
Montana	North Dakota
New Jersey	Pennsylvania
North Dakota	Minnesota, Montana
Ohio	Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
Oregon	Arizona* Note: Arizona does not have a traditional reciprocity agreement but has a similar tax arrangement with four states.
Pennsylvania	Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
Virginia	Arizona*, District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
West Virginia	Kentucky, Maryland, Ohio, Pennsylvania, Virginia
Wisconsin	Illinois, Indiana, Kentucky, Michigan

Note: Arizona does not have a traditional reciprocity agreement but has a similar tax arrangement with four states.

How to set up reciprocity in Homebase Payroll

• Contact Homebase's Payroll Support team to turn on reciprocity for your team member.
• We recommend that you collect and retain your team member's nonresident certificate in the Documents tab of their Team profile, or keep it on hand in your other document storage. 

---

Important Notes on Reciprocity Set Up

• Withholding ID Requirement
  • After opting in, you must provide a Withholding ID for the employee’s home state. The employee may also need to complete their state’s residence withholding form for proper tax remittance. Refer to our state tax registration guides for assistance registering for this new tax ID. 

---

Courtesy Withholding with Homebase Payroll

Homebase now offers courtesy withholding tax for eligible employees. If eligible, employees will have a field available in the Job Details > Payroll Settings section of their profile in the Team > Roster.

If this courtesy tax is new to your business, you may need to register for a withholding tax ID. 

• Withholding ID Requirement
  • After opting in, you must provide a Withholding ID for the employee’s home state. The employee may also need to complete their state’s residence withholding form for proper tax remittance. Refer to our state tax registration guides for assistance registering for this new tax ID.