Reciprocal agreements are entered into by neighboring states so residents can cross the border for employment without having to pay double income tax. Many states have created these agreements to make tax time easier for commuters who work and reside in two different states. These exemptions mean you only have to pay income tax on employment income in the state in which you permanently reside.

Taxpayers who work in the District of Columbia are exempt from paying any income tax for the district if they do not also reside there. Simply submit Form D-4A to your employer to avoid being taxed in D.C. and claim the exemption.

Reciprocal agreements only relate to employment income. Any additional income earned from another in D.C. is required to be reported using a nonresident tax return. At tax time, you’ll file a resident return in your home state, and list every income source, including any earned in the District of Columbia.

For income earned in D.C. that was not employment income, you’ll have to file a nonresident return reporting the amount earned. In these cases, you can usually claim a tax credit on your resident return for the amount of taxes you paid on the non-employment income.

Non-employment income can include:

• Rental income
• Lottery winnings
• Consulting service fees
• Income from property sales
• Income from a partnership, LLC, or S-corporation