North Dakota’s workforce isn’t purely comprised of residential employees. Some workers travel from Minnesota or Montana to work in the state of North Dakota, and those who do fall under a special set of tax rules that exempt them from paying taxes in North Dakota on the income they earned there. These rules are known as reciprocal tax agreements.

Residents of Minnesota or Montana should file exemption Form NDW-R with their employer to ensure taxes are not accidentally withheld. This reciprocal tax agreement only applies to residents in these two states, and to earned income. If a taxpayer has unearned sources of income in North Dakota, such as interest, gambling winnings, capital gains, or rental income, then they will need to file a tax return in the state, regardless of where they live or the reciprocal agreement. Likewise, if an employee is not a resident of Montana or Minnesota, then they will also be responsible for filing a tax return to both their state of residence and North Dakota.

There are other special circumstances and sources of income in which one may need to file two tax returns (one to each state), so it’s important to evaluate your own tax situation carefully. That said, reciprocity makes tax time a little bit easier on those who commute to work across state lines, and reciprocal tax agreements can save a lot of extra work at tax times.