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
- Net Income
- State Where You Filed a tax Return - Indicate taxpayer was a resident of Michigan
- Illinois Income
- Wages, Salaries, tips etc
- Adjustments to State Wages - Enter wages as a negative number
The Illinois return must be printed, signed and mailed to the state. Include a note explaining the taxpayer is a resident of a reciprocal state, a copy of the Iowa return and copies of the Illinois W-2(s) showing the income.
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:
- Add or Edit Indiana Nonresident Return
- Miscellaneous Forms
- Indiana Reciprocal return - (IT-40RNR) and answer the questions.
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:
- Add or Edit Nonresident Michigan Return
- Nonresident & Part Year Income Allocation
- Income Allocation
- Wages and Salaries
- Adjustments to State Wages - Enter the wages for Michigan as a negative.
To claim exempt from future withholdings, file form MI-W4 with the taxpayers employer.
If the other state is Ohio:
- Add the Ohio Non Resident Return
- Nonresidents who meet certain required criteria - Answer Yes to this question. Reciprocal states qualify.
If this question was answered No when adding the Ohio Nonresident Return:
- Edit Ohio Non Resident Return
- Select Form IT-NRS (affidavit of Non-Ohio Residency). Select Yes to complete the form. Complete the next two sections indicating taxpayer place of Domicile and place of Abode (both should be the resident state).
To claim exempt from future withholdings, complete form IT-4NR and file it with the 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.
- Add or Edit Virginia Nonresident return
- Personal Information
- Other Categories
- File Form 763-S (Special Non-resident Claim)
- Commuter State Exemption
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:
- Add Nonresident West Virginia Return
- Are you a full -year resident of a Reciprocal State with West Virginia Income Only from wages, tips and salary? - Answer Yes and Select Kentucky from list of 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:
- Add or Edit Wisconsin Nonresident return
- Legal Residence Questionnaire - Enter Taxpayer/Spouse Status and State of Residence (if not completed when adding the state)
- Wisconsin Income
- Total Income
- Wages, Salaries, tips ect
- State Wages - Enter the amount of Wisconsin Income as a negative amount
To claim exempt from Wisconsin withholdings, complete form W-220 and file it with the employer.
Note: 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: