Reciprocal income tax agreements in the U.S allow residents of one state to work in a neighbouring state while only paying income taxes to their state of residency. This simplifies tax time for people who live in one state, but work in another by requiring them to file only one state tax return. If the state where you work and the state where you live have a reciprocal agreement, you are exempted from paying income taxes on any wages earned in the state where you work.
In the U.S several states have adopted income tax reciprocity agreements with one or more sister states, including the District of Columbia. These agreements allow income to be taxed in the state of residence even though it is earned in another state, as long as the state where
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Reciprocal agreements generally cover only compensation, such as wages, salaries, tips, commissions, and bonuses a taxpayer receives for personal and professional services. But in some cases states may specify that certain income, such as lottery winnings, is not covered under reciprocity agreements.1
Reciprocal income tax agreement in the State of Minnesota
Minnesota has income tax reciprocity agreements with Michigan and North Dakota. For people who live in one of these states and work in Minnesota and vice versa, the agreements may simplify tax filing by letting them file a return only in their home state instead of in both states.
Reciprocity prevents both states from taxing the same “personal service income” i.e. wages and other job-related income. Generally only your home state will tax the job-related income you get from an employer in a reciprocity state. To qualify for reciprocity, all of the following conditions must be satisfied:
1. You are a resident of Minnesota who works in Michigan or North Dakota, or you reside in Michigan or North Dakota and work in