Indiana and Illinois Reciprocal Agreement: What You Need to Know
If you are living and working in Indiana and have been offered a job in Illinois or vice versa, you may wonder how taxes will be affected. The good news is that there is a reciprocal agreement in place between these two states, which means that neither state will tax your income twice.
Here`s what you need to know about the Indiana and Illinois reciprocal agreement:
What is a reciprocal agreement?
Reciprocal agreements occur when states agree to tax residents of their neighboring state based on where they earned their income. In this case, the agreement applies to those who work in Illinois but live in Indiana or vice versa.
How does it work?
The agreement allows residents to claim exemption from taxes in their nonresident state. For example, if an Indiana resident works in Illinois, they can claim exemption from Illinois income tax and only pay Indiana income tax. The same applies to Illinois residents who work in Indiana.
Who is eligible?
The agreement only applies to individuals who live in one state and work in the other. If you are a resident of Indiana who works in Indiana or an Illinois resident who works in Illinois, you are not eligible for this agreement.
What if I work in multiple states?
If you work in both Illinois and Indiana, you will need to file income tax returns in both states. However, the reciprocal agreement means that you will not be taxed twice on the same income. You will only need to pay taxes in the state where you live.
What if I am self-employed?
If you are self-employed and work in both Illinois and Indiana, you will still need to file income tax returns in both states. However, you will only be required to pay taxes in the state where you live.
Final Thoughts
The Indiana and Illinois reciprocal agreement makes it easier for residents of these two states who work across state lines. Remember, however, that this agreement only applies to individuals who live in one state and work in the other. If you have any further questions or concerns about taxes, it`s always a good idea to consult with a tax professional.