US State Reciprocity Agreements

American states generally tax residents on all income and non-residents on income sourced within the state. For someone living in one state and working in another, both claims apply to the same salary.

Two mechanisms resolve this, and which one applies depends on the pair of states involved.

Reciprocity agreements

Where an agreement exists, the work state agrees not to tax the wages of a resident of the other state. The employee files a non-residency certificate with the employer, withholding is done for the home state only, and one return is filed.
Agreements are bilateral and cover wages and salaries, not other income. Business income, rental income and capital gains are not covered.
They are concentrated in the mid-Atlantic and midwest, where dense commuting across state lines has existed for a long time.
Filing the certificate is the employee's job. Without it the employer withholds for the work state and the benefit is lost until the return is filed.

Where no agreement exists

Step	What happens	Practical effect
Work state withholding	The employer withholds for the state where work is performed	Money goes to the work state through the year
Non-resident return	Filed in the work state, reporting income sourced there	Establishes the work state liability
Resident return	Filed in the home state, reporting all income	Establishes the home state liability
Credit for taxes paid to another state	The home state gives a credit for tax paid to the work state	Prevents most double taxation
The residual	If the home state rate is higher, the difference is still due	If the work state rate is higher, the excess is generally not refunded

The credit mechanism usually works but rarely produces a perfect result. The credit is typically limited to the tax the home state would have charged on the same income, so a commuter into a higher tax state pays the higher of the two rates overall.

The convenience of the employer rule

A small number of states apply a rule treating days worked remotely for the employee's own convenience as days worked at the employer's location. New York is the most significant, and Delaware, Nebraska and a few others apply versions of it.

The effect is that someone employed by a New York company who works from home in another state may still be treated as earning New York source income, unless the remote work is required by the employer for a genuine business reason rather than permitted for convenience.

This produced a great deal of dispute after remote work became common, and it remains a live issue. Anyone in this position should establish the employer's stated position in writing, because the distinction between required and permitted is the whole argument.

Practical checklist

Find out whether your home state and work state have a reciprocity agreement.
If they do, file the non-residency certificate with your employer immediately rather than waiting.
If they do not, expect to file two state returns and check that the credit has been applied correctly.
If you work remotely across a state line, check whether the work state applies a convenience rule.
If you moved states mid year, expect part-year resident returns in both, with income apportioned by the period of residence.
Check local taxes separately, since they follow their own rules. See city income taxes.

The wider parallel

The structure is close to the European cross-border commuter problem, with reciprocity agreements playing the role of frontier worker protocols and the credit mechanism standing in for treaty relief. The European version is in cross-border commuters.

The difference is that American states have no equivalent of a social security coordination framework, because payroll taxes are federal and follow the employee regardless of which state is involved.

State tax sits on top of the federal figure. Start with the federal position on the US salary calculator.