Which states does Kentucky have a reciprocal agreement with?

Kentucky has reciprocal agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin. These agreements provide for taxpayers to be taxed by their state of residence, and not the state where income is earned. 

Kentucky does not allow a credit for tax paid to a reciprocal state. If tax was withheld by a reciprocal state, you must file directly with the other state for a refund of those taxes. You cannot claim a credit for taxes paid to one of the reciprocal states on your Kentucky tax return.

The credit for taxes paid to another state is automatically calculated in your account when you add a Nonresident state return to your already created Resident Kentucky return.

If you qualify for the reciprocal agreement, you will need to remove the automatic calculation by logging into your account and go to:

1. State Section
2. Create a Kentucky Resident Return
3. Add the other state Nonresident return

Illinois nonresidents:

If the other state is Illinois, follow the steps below:

1. Illinois Nonresident Return
2. Part Year and Nonresident Questions

Indicate you are a resident of Kentucky. The Illinois wages need to be removed from the return. To do so, please go to:

1. Federal Section
2. Income
3. Enter Myself
4. Wages and Salaries
5. Edit the W-2(s) with Illinois wages and remove the amount in Box 16.

Continue to save the changes. Disregard the warning about the withholdings. To claim exempt from Illinois withholdings on future returns, complete form IL-W-5-NR and file it with your employer.

Indiana nonresidents: 

If the other state is Indiana, follow the steps below:

1. State Section
2. Indiana Nonresident Return
3. County Information

Complete the questions indicting you lived in Kentucky and the county where you worked. Go to Indiana Reciprocal return (it-40RNR) and answer the questions. Do NOT enter the wages in the Adjustment to Indiana Taxable Income unless the Indiana information is not present in boxes 15-17 on the W-2. Wages are automatically pulled from the W-2 when information is entered.

Please note that you may still be subject to county tax on the income you earned while a nonresident. According to Indiana Informational Bulletin #33, 'Indiana reciprocity agreements do not affect withholding requirements concerning the Indiana County Adjusted Gross Income Tax (CAGIT), County Economic Development Income Tax (CEDIT), or County Option Income Tax (COIT).'

To claim exempt from Indiana withholdings on future returns, complete form WH-47 and file it with your employer.

Michigan nonresidents:

If the other state is Michigan, follow the steps below:

1. State Section
2. Nonresident Michigan Return
3. Residents of Reciprocal States

Enter the wages for Michigan as a negative. To claim exempt from future withholdings, file form MI-W4 with your employer. 

Ohio nonresidents:

If the other state is Ohio, follow the steps below:

1. State Section
2. Nonresident Ohio Return
3. Basic Information

Complete the Residency Status and the resident state. Proceed to Subtractions From Income > Employee Compensation earned in OH by residents of neighboring States > Enter the Ohio source income earned while a resident of Kentucky as a positive number. To claim exempt from future withholdings, complete form IT-4NR and file it with your employer

Virginia nonresidents:

If the other state is Virginia, a Virginia return is not required if your only source of VA income was from wages and salaries. Form 763-S is required to be completed to claim a refund for the taxes withheld. You can complete the form using the program by going to:

1. State section
2. Virginia Nonresident return
3. Miscellaneous forms
4. VA Special Non-resident Claim

The form needs to be mailed to Virginia with a copy of the Kentucky Resident Return and copies of the W-2 (s) used to create the return. The mailing address is located on the form. Complete form VA-4 to claim exempt from future withholdings. File the form with your employer.

West Virginia nonresidents: 

If the other state is West Virginia, follow the steps below:

1. State Section
2. Nonresident West Virginia Return
3. Basic Information

Complete the section for Special Nonresident Income for Reciprocal States. To claim exempt from future withholdings, complete form WV/IT-104 and file it with your employer.

Wisconsin nonresidents: 

If the other state is Wisconsin: 

1. Go to the State Section > Wisconsin Nonresident return > Basic Information > Select Your Resident State > Save.
2. Continue to the Legal Residence Questionnaire. Select Yes to complete the questionnaire. Click Begin for the Residency and Nonresidency questions
3. Complete this section as instructed.
4. Go to the Federal Section > Income > Wages and Salaries > Edit the W-2 with Wisconsin wages and remove the amount in Box 16. Click Continue to save the information. Disregard the warning about the withholdings amount. To claim exempt from Wisconsin withholdings, complete form W-220 and file it with your employer.

NOTE: The nonresident returns will refund some or all of the taxes withheld. You may still be liable for county or city taxes in the state where the income was earned. Check with the state for more information. The resident return will calculate an amount owed (usually).