Indiana Reciprocal Tax Agreement: What You Need to Know

Indiana, like many other states, has entered into reciprocal tax agreements with other states. These agreements allow employees who work in one state but live in another to only pay income tax to their resident state. This is known as a reciprocal tax agreement.

But what does this mean for Indiana residents and those who work in Indiana?

First, it`s important to understand which states have reciprocal tax agreements with Indiana. As of 2021, those states are:

– Kentucky

– Michigan

– Ohio

– Pennsylvania

– Wisconsin

If you are a resident of one of these states and work in Indiana, you do not need to pay Indiana income tax. Similarly, if you are an Indiana resident and work in one of these states, you will only need to pay income tax to Indiana.

It`s important to note that these agreements only apply to earned income, such as wages, salaries, and tips. If you have income from other sources, such as rental properties or investments, you may still need to pay taxes to both states.

Additionally, if you work in a state without a reciprocal tax agreement with Indiana, you may need to pay income tax to both states. This can be a complicated and frustrating process, but it`s important to comply with both state`s tax laws.

Reciprocal tax agreements can be a huge relief for those who live and work across state lines. By only having to pay income tax to one state, it can simplify tax filing and save on taxes for both the employee and employer.

If you have questions about your specific situation, it`s best to consult with a tax professional who can give you personalized advice based on your income and residency status.

In summary, if you live in one of the five states with a reciprocal tax agreement with Indiana and work in Indiana, you do not need to pay Indiana income tax. If you are an Indiana resident working in one of these states, you will only need to pay income tax to Indiana. Understanding these agreements can save you time and money when it comes to tax season.