What's covered in this guide?
How state income tax withholding works
Most US states levy a personal income tax on wages and require employers to withhold it from each paycheck. A few states, like Florida and Texas, don't tax wage income at all, so there is no state income tax (SIT) withholding for employees who live and work there.
Where a state does have an income tax, two things drive how an employer withholds it:
The work state — the state where the employee physically performs the work. By default, the work state's income tax applies first because the wages are sourced there.
The state of residence — the state where the employee lives. Resident states generally tax their residents on all income, regardless of where it was earned, and may require employer withholding for resident employees.
When an employee lives and works in the same state, only one state is in play and the math is simple: the employer withholds for that state. When the home state and work state are different, both states can claim the wages, and the rules below — withholding certificates, reciprocity, and nexus — decide which state(s) the employer actually withholds for, and how much.
In Workforce, the employee's report location is what tells payroll the work state. The employee's home address is what tells payroll the resident state. State-specific withholding certificates (the equivalent of a federal W-4 for each state) are completed by the employee from their mobile app and feed the per-employee inputs to the calculation.
What state income tax reciprocity is
A reciprocity agreement is a deal between two states that lets an employee who lives in one state and works in the other be subject to income-tax withholding only in their home state. The work state agrees not to tax the wages of qualifying nonresidents from a specific list of partner states.
Reciprocity is opt-in for the employee. To claim it, the employee files a nonresidence certificate with their employer for the work state — a form that says "I live in state X, please don't withhold state Y income tax from me." Once that's on file, the employer stops withholding the work state's income tax and (if registered to do so) withholds the home state's income tax instead. Without reciprocity, the employer withholds for the work state and the employee typically claims a credit for taxes paid to that state on their home-state income tax return.
Reciprocity only covers state income tax. It does not cover local income taxes, state unemployment insurance (SUTA), workers' compensation, or paid family/medical leave programs — those continue to follow the work state's rules.
How an employee claims reciprocity
The election is made by the employee on their state withholding certificate in the Workforce mobile app:
Open My Profile and tap Tax Forms.
Open the work state's tax form (for example, the Pennsylvania form for an employee whose report location is in Pennsylvania).
Expand the Nonresident Withholding section.
Choose the home state from the list of reciprocal partners. If none of the listed states apply, leave it on Not Applicable so work-state withholding continues.
Save the form.
Once a reciprocal home state is saved on the certificate, work-state income tax withholding stops on future pay runs. Home-state withholding only applies if the employer also has a setup for that state in Workforce (see Employer nexus below).
If the employee's state of residence later changes, the on-screen text on the form reminds them to notify their employer within ten days, in line with most states' nonresidence certificate rules.
What admins see
The reciprocal-state field is edited by the employee from the mobile app — admins do not change the election directly. On the desktop view of an employee's tax documents, when the employee has elected a reciprocal home state, the work state's withholding certificate card displays a Reciprocity: [home state] label so the election is visible at a glance.
If a reciprocity election needs to be changed, ask the employee to update it from the mobile app. Once they save, the card label and pay-run withholding both update on the next pay run.
Employer nexus and where Workforce can withhold
Reciprocity decides which state the employer should withhold for. Employer nexus decides which states the employer is actually set up to withhold and remit for. The two interact whenever an employee crosses state lines.
An employer has nexus in a given state's tax jurisdiction in Workforce when one of two things is true:
The employer has at least one location whose tax jurisdictions include that state — for example, a Pennsylvania store creates Pennsylvania withholding nexus.
The employer has a registered jurisdictional tax profile for that state — typically because they registered with that state's revenue department to file and remit, even if they don't have a physical site there.
No nexus in a state means Workforce isn't registered to file or deposit that state's income tax for the employer, and so it can't actually run withholding for it. The practical implications:
If the employee's home state has no employer nexus, reciprocity stops work-state withholding but doesn't replace it. When the employee elects reciprocity, Workforce stops withholding the work state's tax. If the employer hasn't registered for the home state, no home-state tax is withheld either — the employee then has to manage the home-state liability themselves (usually via estimated payments and their personal return).
To withhold the home state for the employee, the employer must register for that state. That means setting up the home state on a location's tax jurisdictions or registering a tax profile with that state's revenue agency, then completing third-party-administrator (TPA) access so Workforce can file and remit there.
SUTA, local taxes, workers' comp, and paid leave still follow the work state. These are tied to the employer's nexus in the work state and aren't affected by an employee's reciprocity election.
Note: If you're hiring across state lines for the first time, decide up front whether you want to register in the new state to withhold for residents there. If not, employees who claim reciprocity will have no state income tax withheld from Workforce and need to plan for that on their personal return.
Things to keep in mind
Reciprocity only covers state income tax. Local income taxes, state unemployment, workers' compensation, and paid family/medical leave continue to follow the work state.
The work state has to support reciprocity. If the work state isn't in the list above, the Nonresident Withholding section won't surface a partner home state — there's nothing to elect.
The election drives withholding, not your compliance file. Keep any signed state-specific nonresidence certificate the employee provides as your record of why work-state withholding stopped.
Check the home state for nexus before promising no surprise tax bill. If you haven't registered there, the employee won't have home-state tax withheld even after they elect reciprocity.
Tip: If a cross-state employee thinks they should be exempt from work-state withholding but the deduction is still showing on their pay stub, the first thing to check is their state withholding form on mobile: have they actually selected a reciprocal home state in the Nonresident Withholding section, or is it still on Not Applicable?