Live in Kentucky, Work Remotely for a Indiana Employer: Who Taxes You?
Answer
Kentucky gets all of it. Because Indiana does not tax wage income, no Indiana withholding exists and no Indiana return is required — but Kentucky taxes residents on worldwide income, so every dollar earned in Indiana still belongs on your Kentucky resident return.
Last verified
Crossing into a state with no income tax does not lower your tax bill, because your home state is not taxing you on where you work — it is taxing you on where you live. Kentucky reaches all of a resident's income, and Indiana adds nothing on top.
Indiana also has a layer below the state one, and it is the layer that survives every agreement: Every Indiana county levies its own income tax, and the reciprocal agreements do not cover it. A resident of a reciprocal state who works in Indiana still pays Indiana county tax on those wages.
What you file
- 1Resident return · Kentucky
File a Kentucky resident return reporting all of your income.
The two states, side by side
| Kentucky | Indiana | |
|---|---|---|
| Taxes wages | Yes — flat | Yes — flat |
| Reciprocity partners | 7 (Form 42A809) | 5 (Form WH-47) |
| Convenience rule | No | No |
| Nonresident return | Form 740-NP | Form IT-40PNR |
| Credit for other-state tax | Schedule ITC | Schedule 6 (Form IT-40PNR) |
| Nonresident safe harbour | None published | None published |
| Local income tax | Yes | Yes |
| Revenue department | Kentucky Department of Revenue | Indiana Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Indiana and working in Kentucky gives:Home state only.
Same two states, different situation
The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.
- W-2 commuter: Kentucky → IndianaReciprocal agreement — file the exemption form
- 1099 contractor: Kentucky → IndianaHome state, plus the client state if you work there
- Moved mid-year: Kentucky → IndianaTwo part-year returns
Other Kentucky pairs
Questions people actually ask
I live in Kentucky and work remotely for a Indiana employer. Which state do I pay?
Kentucky gets all of it. Because Indiana does not tax wage income, no Indiana withholding exists and no Indiana return is required — but Kentucky taxes residents on worldwide income, so every dollar earned in Indiana still belongs on your Kentucky resident return.
Which state should my employer be withholding for?
Kentucky. Your employer should withhold Kentucky tax rather than Indiana tax on these wages. If a Indiana line is showing on your pay stub, raise it with payroll now rather than at filing time.
Does my Indiana employer's location alone create a Indiana tax obligation?
No. Indiana sources wages to the place where the work is physically performed, and it does not apply a convenience-of-the-employer rule that would override that. Days you actually spend working inside Indiana are a different matter — those are Indiana-source income and can require a nonresident return.
How current is this?
The Kentucky and Indiana rules on this page were last checked against Kentucky Department of Revenue and Indiana Department of Revenue on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.
Sources
Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.
- Kentucky Department of Revenue — individual income taxaccessed 2026-08-07
- Indiana Department of Revenue — individual income taxaccessed 2026-08-07