Live in One State, Work in Another: How Your Taxes Work
Millions of people cross a state line to get to work: New Jersey to Manhattan, Vancouver to Portland, northern Kentucky to Cincinnati. If that’s you, you might worry about being taxed twice. Usually you aren’t, but you might end up filing two state returns, and you’ll generally pay whichever state’s rate is higher.
The basic rule
Two states have a claim on your income:
- The state where you work can tax the wages you earn there, even if you don’t live there.
- The state where you live taxes all of your income, wherever it’s earned.
To keep that from being double taxation, your home state gives you a credit for taxes paid to other states. In practice:
- If your work state has a lower rate than your home state, you pay the work state, then pay your home state the difference.
- If your work state has a higher rate, you pay the work state, and your home state credit wipes out what you’d owe at home.
Either way you end up paying roughly the higher of the two rates, not both added together.
Reciprocity agreements
Some neighboring states skip all this with a reciprocity agreement. If you live in one state and work in a partner state, you only pay tax to your home state. You give your employer a short exemption form and they withhold for your home state instead.
These are the main agreements in 2026:
| If you live in | You can work here and only pay your home state |
|---|---|
| Illinois | Iowa, Kentucky, Michigan, Wisconsin |
| Indiana | Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin |
| Kentucky | Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin |
| Maryland | D.C., 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 |
| Pennsylvania | Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia |
| Virginia | D.C., Kentucky, Maryland, Pennsylvania, West Virginia |
| West Virginia | Kentucky, Maryland, Ohio, Pennsylvania, Virginia |
| Wisconsin | Illinois, Indiana, Kentucky, Michigan |
A few details matter here. Virginia’s agreement with Kentucky only covers people who commute daily, and Maryland, Pennsylvania and West Virginia residents only qualify in Virginia if they spend 183 days or fewer there and don’t keep a home in the state. Arizona has a one-way version: residents of California, Indiana, Oregon and Virginia who work in Arizona can ask their employer to stop Arizona withholding, but they still file an Arizona return. The District of Columbia doesn’t tax wages of people who live outside D.C. at all.
Reciprocity covers state income tax only. Local taxes, like Philadelphia’s wage tax or Ohio city taxes, can still apply where you work.
Common situations
New Jersey resident working in New York City. There’s no reciprocity. New York taxes your wages, New Jersey taxes you too and then credits what you paid to New York. Because New York’s rates are higher at most incomes, you mostly just pay New York. You don’t pay New York City’s resident income tax, since that only applies to people who live in the five boroughs.
Pennsylvania resident working in New Jersey (or the reverse). Reciprocity applies. File the exemption form with your employer and you only deal with your home state.
Washington resident working in Oregon. Oregon taxes your Oregon wages, and since Washington has no income tax, there’s no credit to claim. You pay Oregon’s full rate. Living in Vancouver and shopping in Oregon, which has no sales tax, is the popular way to claw some of it back.
Maryland resident working in Virginia or D.C. Reciprocity means you pay only Maryland, including your county’s local tax.
Remote work and the “convenience” rule
If you work from home in one state for an employer in another, you’d normally only owe tax to the state where you physically do the work. A few states disagree. New York is the best known: if your office is in New York and you work remotely by choice rather than because your employer requires it, New York can still tax those wages. Delaware, Nebraska and Pennsylvania have similar rules, and Connecticut and New Jersey apply one to residents of states that do it to them.
If you’re fully remote across state lines, it’s worth checking this before you assume you’re off the hook.
What to do now
- Make sure your employer is withholding for the right state. If reciprocity applies, ask HR for the exemption form.
- Expect to file a nonresident return in your work state and a resident return at home, unless reciprocity or a no-tax state makes one unnecessary.
- Compare your take-home in both states with the state comparison tool to see which rate you’ll effectively pay.