Reciprocal Tax Agreement Texas: What You Need to Know

If you are a resident of Texas who works in another state, or a non-resident who works in Texas, you may have heard of the term “reciprocal tax agreement.” What is it, and how does it affect your taxes? In this article, we will explore the basics of reciprocal tax agreements in Texas.

What is Reciprocal Tax Agreement?

A reciprocal tax agreement is an agreement between two states that allows residents of one state who work in the other state to pay taxes only in their state of residence. This means that if you live in Texas but work in another state, you will not have to pay taxes to that state. Instead, you will only have to pay taxes to Texas.

Which States Have Reciprocal Tax Agreements with Texas?

Currently, Texas has reciprocal tax agreements with four states: Arkansas, Louisiana, New Mexico, and Oklahoma. If you work in one of these states as a Texas resident, you will only have to pay taxes to Texas.

It is important to note that reciprocal tax agreements only apply to income taxes. Other taxes, such as sales taxes or property taxes, are not affected by these agreements.

How Do Reciprocal Tax Agreements Work?

To take advantage of a reciprocal tax agreement, you will need to fill out a form called a “Certificate of Nonresidence.” This form will ask for your personal information, such as your name and address, as well as information about your employer and the state in which you work.

Once you have filled out the form, you will need to give it to your employer. Your employer will then use the information on the form to determine how much, if any, taxes they need to withhold from your paycheck for the state in which you work. In most cases, if you live in Texas and work in another state with a reciprocal tax agreement, your employer will not withhold any taxes for that state.

If you work in a state that does not have a reciprocal tax agreement with Texas, you may still be eligible for a credit on your Texas taxes for taxes paid to the other state. This can help reduce your tax liability and prevent you from being taxed twice on the same income.

Conclusion

Reciprocal tax agreements can be a valuable tool for residents of Texas who work in other states. By taking advantage of these agreements, you can reduce your tax liability and simplify the tax filing process. If you work in a state with a reciprocal tax agreement with Texas, be sure to fill out a Certificate of Nonresidence to ensure that you are not overpaying on your taxes. If you have any questions about reciprocal tax agreements or other tax-related issues, consider speaking with a tax professional for guidance.