Reciprocal Tax Agreements and Certificates of Non-Residence
Some states have reciprocal tax agreements with each other that allow employees who live in one state and work in another to be taxed on income in the state where they live, rather than the state where they work. In these cases, employees can provide a Certificate of Non-residency to the state where they work in order to be exempted from paying income taxes in that state.
Zenefits will automatically detect whether an employee can take advantage of a reciprocal agreement based on their home address and assigned work location. However, Zenefits simply notes the reciprocal setup for HR and payroll purposes. Employees will still need to complete a Certificate of Non-residency and submit it to their employer if required.
- New employees can opt for reciprocal tax setups when onboarding into Zenefits.
- If an existing employee changes their address or is assigned a new work location and they now have the option for a reciprocal setup, they'll be able to log in to Zenefits and set it up.
- Reciprocal agreements apply only to state income withholding. Employees who opt for reciprocal tax setups are still subject to their work state's other employee-paid taxes.
- Administrators can also mark a state as exempt in the Reciprocal Agreements section located in the employee's tearsheet.
Employees will be taxed in their home state if they do not indicate whether they have a certificate of non-residency on file. If they indicate “Yes”, they will also have tax withheld to their home state. However, if they indicate “No”, taxes will be withheld to the work state, unless they provide a certificate of non-residency to their work location's state.
Agreements and Certificates
In the table below, employees who are assigned a work location in one of the states in the Work State column and a home address in a state listed in the Residence State column in the same row can choose to be taxed in their home states.
In some cases, such as MD or VA, the state withholding exemption form has a field for declaring exemption on the basis of non-residency. Other states, such as IL, have separate forms for declaring non-residency for the purposes of withholding.
|Work State||Residence State||Certificate of Non-residency|
|D.C.||Any state, and Puerto Rico||D-4A|
|Illinois||Iowa, Kentucky, Michigan, Wisconsin||IL-W-5-NR|
|Indiana||Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin||WH-47|
|Kentucky||Illinois, Indiana, Michigan, Ohio, Virginia, Wisconsin, West Virginia||42A809|
|Maryland||DC, Pennsylvania, Virginia, West Virginia||MW 507|
|Michigan||Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin||MI-W4|
|Minnesota||Michigan, North Dakota||MWR|
|North Dakota||Minnesota, Montana||NDW-R|
|Ohio||Indiana, Kentucky, Michigan, Pennsylvania, West Virginia||NJ-165|
|Pennsylvania||Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia||REV-419|
|Virginia||DC, Kentucky, Maryland, Pennsylvania, West Virginia||VA-4|
|Wisconsin||Illinois, Indiana, Kentucky, Michigan||W-220|
|West Virginia||Kentucky, Maryland, Ohio, Pennsylvania, Virginia||WV /IT-104R|
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