When it comes to state taxes, the idea of a reciprocal agreement is pretty simple: when two states have a reciprocal agreement in place, they agree to not tax each other`s residents when they work in their respective states. This can be a big relief for many people who live and work near state borders, but it`s important to understand the details of these agreements to avoid getting hit with unexpected tax bills.

So, what do the state reciprocal agreements for 2021 look like? Generally speaking, most of the existing agreements are still in place, although a few have changed or been updated. Here`s a quick overview of some of the major agreements to be aware of:

– Illinois and Iowa: This agreement remains in place, meaning that residents of one state who work in the other state do not have to pay income tax on that income.

– Indiana and Kentucky: This agreement has been extended through 2022, which means residents of each state who work in the other state will not be taxed on their income.

– Maryland, Virginia, and Washington D.C.: This agreement also remains in place, allowing residents of these three areas to avoid being taxed by the other jurisdictions on their income.

– Michigan and Indiana: This agreement has been extended through 2021, so residents of one state who work in the other state will not be taxed on that income.

– Minnesota and Wisconsin: This agreement also remains in place, meaning residents of one state who work in the other state will not be taxed on that income.

It`s worth noting that while these agreements generally cover most forms of income, there may be exceptions or caveats to be aware of. For example, some states may still tax residents on income earned from certain types of employment, such as freelance work or self-employment. Additionally, some states may have different rules for non-residents who perform temporary work within their borders.

If you`re unsure of how a state reciprocal agreement may affect your tax situation, it`s always a good idea to consult with a tax professional or use tax software that can help you navigate the nuances of these agreements. With careful planning and attention to the details, you can take advantage of these agreements to help avoid double taxation and keep more of your hard-earned income.