Federal law prohibits two states from taxing the same income—for employees who live and work in different states, and file more than one state tax return, reciprocal agreements exist so that they only pay income taxes to one state (usually their home state of residency) on the same wages.
Several states have reciprocal agreements with other states, so employees who work and live in those different states don’t have to have taxes withheld in more than one of them.
Reciprocal agreements usually state that:
If reciprocity exists between the two states, employees will need to complete and deliver a non-residency certificate to you in order to have the residency state tax withheld instead of the work state tax.
Important reminder—unemployment registration may not be necessary in an employee’s home state
While reciprocity is determined by an employee's home address and pertains to their income tax withheld, unemployment liability is typically determined by an employee's work address.
Before registering for unemployment tax in a new state, reach out to an accountant or the applicable state agency for determination of liability.
|Resident State||Work State||Non-resident Certificate|
|States outside of District of Columbia||District of Columbia||D-4A|
|California, Indiana, Oregon, Virginia||Arizona||WEC|
|Iowa, Kentucky, Michigan, Wisconsin||Illinois||IL-W-5-NR|
|Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin||Indiana||WH-47|
|Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin||Kentucky||42A809|
|District of Columbia, Pennsylvania, Virginia, West Virginia||Maryland||MW 507|
|Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin||Michigan||MI-W4|
|Michigan, North Dakota||Minnesota||MWR|
|Minnesota, Montana||North Dakota||NDW-R|
|Indiana, Kentucky, Michigan, Pennsylvania, West Virginia||Ohio||IT-4NR|
|Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia||Pennsylvania||REV-419|
|District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia||Virginia||VA-4|
|Kentucky, Maryland, Ohio, Pennsylvania, Virginia||West Virginia||WV/IT-104 R|
|Illinois, Indiana, Kentucky, Michigan||Wisconsin||W-220|
Note: NY and NJ do not have reciprocity. If you work in NY and live in NJ, you will need to pay NY income taxes as a non-resident and pay NJ income taxes as a resident. However, NJ residents can take a tax credit for taxes that have been paid to other jurisdictions.
Step 1. Register for a withholding ID with the resident state
If your employee's resident state already exists in your Gusto account with a withholding ID, you don't need to complete step one.
Step 2. Receive a signed Certificate of Non-residency
Step 3. Elect to withhold income taxes in the resident state
Step 4. Enter a withholding ID for the resident state
If your employee's resident state already exists in your Gusto account with a withholding ID, you don't need to complete this step.
Income tax withholding requirements vary by state.
Gusto does not support flexible (variable) courtesy withholding*—for now, there are safeguards in place to make sure that the required payroll taxes, both unemployment taxes and income withholding taxes, are calculated and withheld based on the applicable address(es) on file for employees during the work period you pay them for.
*Exception: courtesy withholding is supported for employees who work in Idaho, and live in either Washington or Wyoming.