Taxes State Taxes Illinois Income Tax Agreement With Bordering States Get the Facts on Illinois Tax Reciprocity By Tonya Moreno, CPA Tonya Moreno, CPA Tonya Moreno is a licensed CPA with about 15 years of diversified accounting, tax, and management experience. She is an expert in the field who has worked as a tax accountant for many large, multi-state corporations. She not only has experience in preparing state and federal tax returns, but has also dealt with complex tax issues with large amounts of money at stake. Today, Tonya serves as the chief financial officer of Maslonka Powerline Services in Spokane, Washington. learn about our editorial policies Updated on February 4, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Reciprocal Agreements States with Illinois Tax Reciprocity Living in IL and Working Elsewhere Living Elsewhere and Working in IL If You Live in a State With Reciprocity Photo: william87 / Getty Images Quite often, residents in one state might work in a neighboring state. To avoid having residents pay taxes in two states, the two neighboring states will form a reciprocity agreement. These agreements concern income taxes for those who work in one state but live in another. Under reciprocity, residents only pay income taxes to their home state, regardless of where they work. Residents of states bordering Illinois can take advantage of such a reciprocal agreement. Reciprocal Agreements Many states across the U.S. have reciprocal agreements, sometimes called tax reciprocity, with bordering states. Normally, anyone earning income in a particular state must pay taxes to that state. This can result in workers being taxed twice if they actually live somewhere else. For example, if you once lived in a state where you worked (and earned income there) and then worked again in what is now your home state, you'd need to file returns for total income earned in your home state. Some states allow taxpayers to take a credit for income taxes paid to another state, and some states have reciprocal agreements. Either way, the end result is that the worker is taxed only in the state where they live. Employers always withhold the local state taxes for their employees, but they're not required to withhold taxes for the state where the worker lives. This can result in out-of-state workers owing money, instead of receiving a refund, when tax time rolls around. Because of this situation, many workers make voluntary estimated quarterly payments to their own states to be on the safe side. States with Illinois Tax Reciprocity Illinois has a reciprocal tax agreement with four bordering states: IowaKentuckyMichiganWisconsin If you cross borders between Illinois and another state for work, you should talk to your employer about your withholding situation so you can ensure you're not surprised at tax time. Living in Illinois and Working in Another State An Illinois resident who works in Iowa, Kentucky, Michigan, or Wisconsin is only required to pay income tax to Illinois. These bordering states do not tax the wages of Illinois residents working in their jurisdictions. You'll need to file Form IL-1040 at tax time. You'll report the income you earned in these reciprocal states to be taxed by Illinois. If the state you work in taxes you, you'll have to file the right form with that state to claim a refund. Note You're entitled to a refund if you're an Illinois resident and have had taxes withheld from your paycheck for any of these four bordering states. You cannot, however, take a credit for taxes withheld from these states on your Illinois return. Living in Another State and Working in Illinois You are not subject to Illinois income tax on wages, salaries, tips, or commissions received from employers in Illinois if you are a resident of Iowa, Kentucky, Michigan, or Wisconsin. However, this does not apply to any other type of income received in Illinois, such as lottery winnings. Note Income outside of your normal wages, salary, tips, or commissions is taxable in Illinois, regardless of residency. What To Do if You Live In a State With Reciprocity If you live in a state that has reciprocity with Illinois, there are a few steps you should take to make sure your records are up-to-date for tax time. The forms you need to fill out will depend on your situation, whether you're living in a state with a reciprocal agreement, and whether you've already had Illinois taxes withheld from your paycheck. File Tax Form IL-W-5NR You should file Form IL-W-5NR, "Employee's Statement of Nonresidence in Illinois," with your employer to certify that you live in one of the four states with reciprocity. This form will let your employer know to stop the tax withholding. Moving? File Form IL-W-5 If you happen to move out of your current state and take up residence in Illinois, you must file Form IL-W-5, "Certificate of Residence in Illinois," with your employer. This form lets your employer know to withhold Illinois taxes. Need a Refund? File Form IL-1040 and Schedule NR If you had Illinois tax withheld from your paycheck when it shouldn't have been, you can claim a refund. To claim it, you'll need to file an Illinois tax return, which is Form IL-1040, and include Schedule NR for your status as a non-resident. You'll also need to include Form W-2c or an official letter from your employer confirming the error. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Illinois Department of Revenue. "What if I live or work in a state that has a reciprocal agreement with Illinois?" Illinois Department of Revenue. "IL-W-5-NR Employee’s Statement of Nonresidence in Illinois."