Certain states that border one another have set specific agreements in place that allow taxpayers to be a resident of one state and work in another. Reciprocal tax agreements make tax time easier by requiring the taxpayer to only file one return in their home state, as they are exempt from paying taxes in their “work” state on money earned through employment.
Those who work in Indiana don’t have to pay income taxes to the state if they are residents of Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin. All that’s required is for the taxpayer to submit Form WH-47 to their employer in Indiana, which will excuse them from paying income tax on their wages.
It’s important to note that these agreements only apply to employment income. That means if you have any income sourced in Indiana from any of the following, you will have to report the income on a nonresident tax return. Non-employment income includes, but is not limited to:
- Money earned through a partnership, LLC, or S-corporation
- Rental income
- Personal property sales
- Lottery and gambling winnings
- Income from consulting/contract work
When you file a resident tax return with your home state, if your state has a reciprocal agreement with Indiana, then you’ll need to list all your income, including that earned in Indiana. The reciprocal agreement covers you from having to then file a non-resident return, provided all your Indiana income is earned through employment.
