Tax time can be a bit confusing for some taxpayers, especially those who have multiple forms of income. Sometimes, employees travel into another state to work, and they may worry about having to file a return in each state in which they live and work. However, some states have created certain rules, known as reciprocal tax agreements, which means that residents of states which hold the agreement with the work state aren’t required to pay income tax on money earned in the non-resident state.

For Pennsylvania workers, you are covered under a reciprocal tax agreement if you are a resident of Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia. B y submitting Form REV-420 to the Pennsylvania employer, you will be exempt from paying taxes on money earned in the Keystone State,

It’s important to note that reciprocal agreements only cover employment income. Unearned income, such as interest, capital gains, rental income, and lottery winnings aren’t covered, and therefore a taxpayer will have to file a return in both states. Additionally, a return will be needed if the employer mistakenly withheld taxes from an employee of one of the exempt states.

Anyone who works in Pennsylvania but is not a resident of a state in which a reciprocal agreement exists will have to pay taxes to both states. However, in most cases, the taxpayer can claim a credit of the taxes paid in the work state in order to compensate for the overpayment.