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Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Ohio

Reciprocal Income Tax Agreement Between Commonwealth of Kentucky and State of Ohio: Everything You Need to Know

The reciprocal income tax agreement is an important aspect of tax laws that allows taxpayers to pay taxes in their home state even if they work in a different state. The Commonwealth of Kentucky and the State of Ohio have signed such an agreement that allows workers to avoid double taxation and simplifies tax filing procedures.

What Is a Reciprocal Income Tax Agreement?

A reciprocal income tax agreement is a legal agreement between two or more states that allows workers residing in one state to pay income taxes to their home state even if they work in a different state. In other words, they can avoid double taxation by paying taxes only in their home state. Such agreements are important to prevent the burden of paying taxes in two different states from falling on taxpayers, reducing the risk of tax evasion and simplifying tax filing procedures.

Reciprocal Income Tax Agreement Between Kentucky and Ohio

The Commonwealth of Kentucky and the State of Ohio signed a reciprocal income tax agreement in 1967, which came into effect in 1968. This agreement allows workers who live in Kentucky but work in Ohio to pay income taxes only in Kentucky. Conversely, those who live in Ohio but work in Kentucky must pay income taxes only in Ohio. This agreement applies to both residents and non-residents of the two states.

How This Agreement Works

Suppose you live in Kentucky and work in Ohio. According to this agreement, you need to fill out Form 42A809 to claim the exemption from Ohio`s withholding tax. This form allows you to pay taxes only in Kentucky, where you reside. Similarly, if you live in Ohio and work in Kentucky, you need to fill out Form IT-4NR to claim exemption from Kentucky`s withholding tax. This form allows you to pay taxes only in Ohio, where you reside.

Benefits of the Reciprocal Income Tax Agreement

The reciprocal income tax agreement between Kentucky and Ohio offers several benefits, including:

1. Simplified tax filing procedures: Workers who live in one state but work in another state can avoid the hassle of filing taxes in two different states. They can submit their tax returns as usual in their home state, without worrying about double taxation.

2. Avoidance of double taxation: Since workers pay taxes only in their home state, they can avoid the burden of paying taxes in two different states. This reduces the risk of tax evasion and saves taxpayers money.

3. Boosts cross-state employment: The agreement promotes cross-state employment by reducing tax obstacles that might discourage workers from taking up jobs in other states. This is particularly important for workers who live close to state borders and may find it easier to work in a neighboring state.

Conclusion

The reciprocal income tax agreement between the Commonwealth of Kentucky and the State of Ohio is an important aspect of tax laws that simplifies tax filing procedures and avoids double taxation. Workers who live in one state but work in another state can benefit from this agreement by paying taxes only in their home state. This agreement also encourages cross-state employment, which is important for economic growth and development.