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State Tax Withholding When a Reciprocal Agreement Exists

Employee works in one state and lives in another state that has reciprocal tax agreement, and the employee wants tax to be withheld for the work location state. Can the employer withhold the work location tax for the convenience of the employee?

Comments

  • David WarrenDavid Warren ✭✭✭

    There is no one-size-fits-all answer to reciprocal agreements. If you mention the actual states involved, there is a chance someone here might know the answer. My best guess is "yes" but the key word in this sentence is "guess".

  • Alex07Alex07 ✭✭

    Employee works in Virginia and lives in Maryland.

  • jadegurljadegurl ✭✭✭

    There is not a reciprocal agreement exactly, but a few of the surrounding states will give a tax credit to your domiciled stated if the appropriate form is filled out by the employee. There is also a military exemption of the requirements are met.

    Also according to the instructions on the MW 507 if a residence is maintained in Maryland for more than 183 days you are an automatic resident and must file a return.

    http://forms.marylandtaxes.gov/18_forms/MW507.pdf

    https://tax.virginia.gov/sites/default/files/taxforms/withholding/any/va-4-any.pdf

    https://tax.virginia.gov/sites/default/files/taxforms/withholding/any/va-4b-any.pdf

  • David WarrenDavid Warren ✭✭✭

    These are not states I am familiar with, but you need to differentiate between what are the employee's responsibilities and what are the employer's responsibilities. Employers do not file employee's year end tax returns and should not be giving advice. Employers pay SUTA (normally based solely on where the work was done), and withholds SIT. That is generally the same as the worked state UNLESS there is both a reciprocal agreement with the lived state AND some sort of form is filed by the employee. I have normally worked for big enough employers where we could pay for a payroll library service (APA, BNA, CCH, RIA). The one thing I have learned over the years is that state rules are all over the place. No one-size-fits-all answer.

  • The VA and MD reciprocal agreement is kind of funky. It seems that an employee becomes a statutory resident if the employee is present in the state more than 183 days and maintains an abode in the state. Then the employee must pay tax on the wages in the worked in state and apply for a credit from their domicile state. This is limited reciprocity. VA and MD have different ways of describing the circumstances, but they both mention 183 days and an abode. Also, the employee may have non-wage income from VA that would be taxable in VA.

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