A mutual agreement is an agreement between two states that allows workers who work in one state but live in another to apply for an exemption from withholding tax in their state of employment. This means that the employee would not withhold income tax from his paycheque for his employment status; They would only pay income taxes to the state in which they live. Expanded definition Where States have reciprocal agreements, each State has its own rules and documents governing reciprocity. Typically, an employee completes an exemption form from their employment status in which they confirm that they live in another state. For example, an employee may work in Ohio but live in Kentucky. Since Ohio and Kentucky have a mutual agreement, the employee would file the Ohio exemption form. This employee would pay Kentucky state income tax instead of Ohio state income tax. Information and online forms can usually be found on the state`s tax website. A certificate of non-residence (or a declaration or declaration) is used to declare that an employee resides in a state that has a mutual agreement with his state of work and therefore chooses to be exempt from withholding tax in his state of work. A non-resident employee eligible for this exemption must complete this return and file it with their employer so that the employer no longer withholds the state income tax withholding tax when the employee is working. Employers must keep the certificate of non-residence on file. For example: An employee works in Wisconsin but lives in Illinois. The employee can present a certificate of non-residency to their employer so that Wisconsin state income tax is not withheld from their paycheck.
Because of the mutual agreement, the employee would then only have to file a tax return from the State of Illinois. Comments on specific definitions should be sent to the authors of the linked source publication. For NIST publications, there is usually an email inside the document. Comments on the presentation and functionality of the glossary should be sent to firstname.lastname@example.org. Definition of the concept Reciprocity between States means that an employee who works in State A but lives in State B would be obliged to pay State income tax only to State B (domicile). An agreement that allows two organizations to support each other. Source(s): NIST SP 800-34 Rev. 1 In some states, such as Virginia or Maryland, the state withholding tax certificate (state version of Form W-4) is used to declare this exemption from withholding tax. In other states, such as Wisconsin, a separate form is used as a certificate of non-residency. See the table below to see your state`s non-resident certificate. .