Fifteen years ago, there was a debate between Connecticut and New York about the so-called “convenience rule.” New York had the rule, so Connecticut residents who worked for New York employers were subject to it. But Connecticut didn`t have the rule, so Connecticut residents couldn`t get credit for taxes paid in New York to qualify for their income tax debt in Connecticut. You do not pay taxes twice on the same money, even if you do not live or work in any of the states with reciprocal agreements. You just have to spend a little more time preparing several state returns and you have to wait for a refund for taxes that are unnecessarily withheld from your paychecks. Although the states that are not mentioned do not have fiscal reciprocity, many have an agreement in the form of credits. Again, a credit contract means that the worker`s home state grants them a tax credit for the payment of state income tax to their working-age state. Tax reciprocity is a state-to-state agreement that eases the tax burden on workers who travel across national borders to work. In the Member States of the Tax Administration, staff are not obliged to file several state tax returns. If there is a mutual agreement between the State of origin and the State of Work, the worker is exempt from public and local taxes in his state of employment. Employees residing in one of the reciprocal states can submit Form WH-47, Certificate Residence, to apply for an exemption from Indiana State income tax. Ohio and Virginia both have conditional agreements.
When an employee lives in Virginia, he has to commute daily for his work in Kentucky to qualify. Employees living in Ohio cannot be shareholders with 20% or more equity in an S company. Reciprocity between states does not apply everywhere. A worker must live in a state and work in a state that has a tax reciprocity agreement. Iowa has reciprocity with a single state, Illinois. Your employer doesn`t need to withhold Iowa income taxes on your wages if you work in Iowa and you live in Illinois. Submit the 44-016 leave form to your employer. States of mutual agreement have what is called fiscal reciprocity among themselves, which relieves these problems. If an employee works in Arizona but lives in one of the reciprocal states, they can submit the WeC, Employee Withholding Exemption Certificate form. Employees must also use this form to terminate their release from source (z.B.
when they move to Arizona). This problem triggered several high-level court battles that were obtained by New York`s highest court, including one from a Connecticut resident who complained about the constitutionality of this double taxation. See Zelinsky/Tax Appeals Tribunal of the State of New York, 42 1 N.Y.3d 85, 801 N.E.2d 840, 769 N.Y.S.2d 464 (2003), as shown here. And it was also the source of some consternation between the tax authorities of Connecticut and New York, without being prepared to stoop.  I have already discussed some of these topics in this article. Over the past decade, this issue has been calm, the two states have probably retreated to their corners and abandoned the fight. But it was only recently that Connecticut finally gave in and adopted its own convenience rule! The following are some comments on this change. Reciprocity agreements mean that two states allow their residents to pay taxes only where they live, not where they work.
This is particularly important, for example, for people with higher incomes who live in Pennsylvania and work in New Jersey. Pennsylvania`s top tax rate is 3.07%, while New Jersey`s maximum tax rate is 8.97%. The invocation of Connecticut or New York probably won`t result in a favorable result – there have been several lawsuits, New York`s rights to make you pay income tax, and Connecticut`s law on loans for taxes paid to another state, is actually