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Taxes for Employees Living and Working in Different States Without Reciprocal Agreements

Employees who live and work in different states without reciprocal tax agreements should still be assigned the proper home and work states in payroll. These employees may be taxed in both states, and may need to file tax returns in both states.

Administrators and employees should always consult a tax advisor to determine tax responsibilities for employees who live and work in different states. Generally speaking, state laws vary:

  • Some states, such as Connecticut, will tax employee income no matter where it's earned. However, amounts paid in the work state may be applied as a credit towards the residence state taxed.
  • Some states allow resident employees to credit the amount withheld by the work state towards the employee's resident taxes, and will only collect additional taxes if the employee owes more in resident state taxes. Kansas, for example, will credit the amount withheld from an employee who works in Missouri towards the employee's KS withholding.
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