Working in Two States
The default rule is simple and the exceptions are not. Your work state taxes the income at source, your home state taxes your worldwide income and gives you a credit — unless the two have an agreement, or unless your work state applies a convenience rule, in which case everything changes.
Tax year 2026 · Updated 2026-08-29 · Guide
The default: source state first, resident credit second
Wages are generally taxed by the state where the work is physically performed. Your employer should withhold for that state. Your home state then taxes your worldwide income — including those same wages — but grants a credit for tax paid to the other state.
The credit is limited to what your home state would have charged on that income. Commute from a low-tax state into a high-tax one and you effectively pay the higher rate; commute the other way and you pay your home state's higher rate, with the credit covering only part.
Reciprocity agreements override the default
Sixteen states plus the District of Columbia have agreements under which a non-resident's wages are taxed only by their home state. You file an exemption certificate with your employer — Form NJ-165 in New Jersey, REV-419 in Pennsylvania, WV/IT-104NR in West Virginia — and the work state withholds nothing.
Pennsylvania has the broadest network, with agreements covering Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. Kentucky has seven agreements. Illinois, Iowa, Michigan, Minnesota, Montana, North Dakota, Wisconsin, Arizona and the District of Columbia all participate.
The exception that catches everyone
Reciprocity covers state income tax only. It never removes a city or county tax. An Ohio resident working in Louisville pays no Kentucky state tax but still pays Louisville's 2.2% occupational fee. A Pennsylvania resident working in Cleveland still pays Cleveland's 2.5%. This is the most expensive misunderstanding in multi-state payroll.
The convenience of the employer rule
New York is the significant one. If you work remotely for a New York employer for your own convenience rather than because the employer requires you to be elsewhere, New York treats all your wages as New York-source and taxes them — even if you never set foot in the state.
The 'employer necessity' exception is narrow. Working from home because you prefer it, or because the company is remote-first, is convenience. A bona fide employer office at your location, or duties that can only be performed where you are, may qualify as necessity.
Connecticut, Delaware, Nebraska and Pennsylvania apply similar rules, and several states have enacted retaliatory provisions. Your home state's credit for taxes paid to New York usually softens the blow but rarely eliminates it, and if your home state has no income tax there is nothing to credit at all.
Moving mid-year
You file a part-year resident return in each state, allocating income to the period you lived in each. You are not taxed twice on the same income, but you do file twice, and the two states may use different allocation methods.
Tell payroll the day you move, not at year end. Withholding is prospective, and a late notification means months of withholding to the wrong state — recoverable, but only through two returns and a long wait.
Working in several states in one year
Travelling employees, consultants and anyone with a multi-state territory face a threshold problem: most states assert taxing rights after a certain number of days worked in the state, and the thresholds vary from a single day to thirty. Some use an earnings threshold instead.
Employers with proper multi-state payroll track this and withhold accordingly. Many do not, which leaves the employee filing non-resident returns for states where nothing was withheld. Keeping a day-count log is unglamorous and occasionally worth a great deal of money.
When one of the states has no income tax
Living in a no-income-tax state and working in a taxing one is the worst combination: the work state taxes you and your home state has no tax to credit it against. A Washington resident commuting into Portland pays Oregon non-resident tax and the Metro Supportive Housing Services tax despite living in a state with no income tax.
The reverse — living in a taxing state and working in a no-tax one — is straightforward. Your home state taxes everything and there is no credit to claim because you paid no other state.
Frequently asked questions
Which state do I pay income tax in if I work remotely?
Normally the state where you physically perform the work. New York, Connecticut, Delaware, Nebraska and Pennsylvania may still tax you as a resident-state employee under convenience-of-the-employer rules.
Do I pay taxes twice if I work in another state?
No. Your home state gives a credit for tax paid to the work state, limited to what your home state would have charged on that income.
What is a reciprocity agreement?
An arrangement under which a non-resident's wages are taxed only by their home state. You file an exemption certificate and the work state withholds nothing.
Does reciprocity cover city taxes?
No. Local income taxes such as Ohio municipal tax, Kentucky occupational fees and the Philadelphia wage tax still apply to non-residents.