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, the taxpayer must file directly with the other state for a refund of those taxes. The taxpayer cannot claim a credit for taxes paid to one of the reciprocal states on their Kentucky tax return.
Kentucky Return:
Complete the information required.
If the other state is Illinois:
- Add or Edit Illinois Nonresident Return
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Part Year and Nonresident Questions - Indicate you are a resident of Kentucky. The Illinois wages need to be removed from the return.
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Return to the Federal Section
- Income
- Wages and Salaries
- 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 the taxpayers employer.
If the other state is Indiana:
- State Section
- Add or Edit Indiana Nonresident Return
- County Information - Complete the questions indicting the taxpayer lived in Kentucky and the county where they 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 the taxpayer may still be subject to county tax on the income 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 the taxpayers employer.
If the other state is Michigan:
- State Section
- Add or Edit Nonresident Michigan Return
- 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.
If the other state is Ohio:
- State Section
- Add or Edit Nonresident Ohio Return
- Basic Information - Complete the Residency Status and the resident state.
- 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 the taxpayers employer.
If the other state is Virginia:
A Virginia return is not required if the taxpayers 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.
- State section
- Add or Edit Virginia Nonresident return
- Miscellaneous forms
- 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 the taxpayers employer.
If the other state is West Virginia:
- State Section
- Add or Edit Nonresident West Virginia Return
- 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 the taxpayers employer.
If the other state is Wisconsin:
- State Section
- Add or Edit Wisconsin Nonresident return
- Basic Information
- Select Your Resident State
- Legal Residence Questionnaire - Complete this section as instructed.
- Return 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 the taxpayers employer.
Note: The nonresident returns will refund some or all of the taxes withheld. The taxpayer may still be liable for county or city taxes in the state where the income was earned. Check with the state for more information.
Additional Information: