Glossary

The vocabulary of multi-state wage taxation: reciprocity agreements, the convenience-of-the-employer rule, sourcing, domicile, nonresident and part-year returns, and the credit for taxes paid to another state.

• Reciprocity agreement

  An agreement between two states that a resident of one, working in the other, is taxed only by the state where they live — provided the employee files the work state's exemption certificate with their employer.

• Convenience-of-the-employer rule

  A sourcing rule under which a state taxes a nonresident employee's remote workdays as if they had been worked in the employer's state, unless the remote arrangement is required by the employer rather than chosen by the employee.

• Credit for taxes paid to another state

  A credit on your resident return for income tax another state charged on the same income, which removes double taxation but is capped at what your home state would have charged on that income.

• Nonresident return

  The return you file with a state where you earned income but did not live, reporting only the income sourced to that state.

• Part-year resident return

  The return you file with a state where you lived for part of the tax year, covering the income you received while you were its resident.

• Domicile

  The one state you treat as your permanent home, which you keep until you both leave it and establish a new one — distinct from where you happen to be living at a given moment.

• Sourcing

  The rules that decide which state a given item of income belongs to — for wages and personal services, normally the state where the work was physically performed.

• Exemption certificate

  The form an employee gives their employer to stop a state withholding from their wages — most often because a reciprocity agreement or a statutory nonresident exemption applies.

• Withholding

  Tax an employer deducts from wages and remits to a state on the employee's behalf — an advance payment against a liability, not the liability itself.

• Estimated tax payments

  Quarterly payments a taxpayer makes directly to a state when nothing is being withheld on their behalf — the standard arrangement for 1099 contractors.