Ohio Reciprocal Tax Agreement: What is it and How Does it Impact You?
The Ohio Reciprocal Tax Agreement is a legal agreement that Ohio has with other states in the United States. Under the terms of the agreement, Ohio residents who work in one of the other states that has a reciprocal agreement with Ohio are not required to pay income tax to that state. Instead, they only pay Ohio income tax on the wages earned in the other state. This agreement provides tax relief to many Ohio residents who work in neighboring states, including Pennsylvania, Michigan, Indiana, West Virginia, and Kentucky.
For example, if you are an Ohio resident who works in Indiana, you would be subject to Indiana’s income tax laws. However, if your employer withheld Indiana income tax from your paycheck, you could file an Ohio tax return and receive a credit for the tax paid to Indiana. This means that you would only pay Ohio income tax on the wages earned in Indiana, not the full amount earned.
The Ohio Reciprocal Tax Agreement also benefits non-Ohio residents who work in Ohio. Under the agreement, these workers are exempt from Ohio income tax on the wages they earn in Ohio. Instead, they only pay income tax to their home state.
The Ohio Department of Taxation provides a list of states with which Ohio has a Reciprocal Tax Agreement. It is important to note that not all states have a reciprocal agreement with Ohio. Therefore, Ohio residents who work in other states without an agreement must pay income tax to that state and file a tax return accordingly.
The Ohio Reciprocal Tax Agreement is significant for taxpayers because it reduces the amount of income tax they owe. It also simplifies the tax reporting process by reducing the number of tax returns that must be filed. This agreement is particularly useful for those who work in bordering states as they may be subject to multiple state income tax filings without the agreement in place.
To take advantage of the Ohio Reciprocal Tax Agreement, taxpayers must indicate that they are an Ohio resident on their W-4 form and provide their employer with a completed IT-4NR form. The IT-4NR form provides employers with the necessary information to withhold the correct amount of Ohio income tax for the employee.
In conclusion, Ohio`s Reciprocal Tax Agreement provides significant tax relief to Ohio residents who work in neighboring states. It simplifies the tax reporting process and reduces the amount of income tax owed. However, it is important to note that not all states have a reciprocal agreement with Ohio, and taxpayers must file a tax return accordingly if they work in a state without an agreement.