Live in Kentucky, Work in Illinois: Which State Taxes Your Paycheck?
Answer
Only your home state taxes these wages. Illinois has agreed with Kentucky not to tax Kentucky residents on wages earned in Illinois, so the answer is a single Kentucky resident return — provided you actually hand Form IL-W-5-NR to your employer, because the exemption is not automatic.
Last verified
A reciprocity agreement is a deal between two revenue departments about which of them withholds. Around thirty such agreements exist across sixteen jurisdictions, and Kentucky and Illinois hold one — which is why this commute produces one return instead of two.
Illinois does not tax the wages of residents of Iowa, Kentucky, Michigan or Wisconsin. The employee gives Form IL-W-5-NR to the Illinois employer, which then withholds for the home state instead.
The certificate goes to your employer's payroll department, not to Illinois Department of Revenue, and it is not retroactive — filing it in June does not recover Illinois tax withheld in January. That money comes back only by filing a Illinois nonresident return for the year and claiming a refund.
What you file
- 1Give to your employer · IllinoisForm IL-W-5-NR
Give your employer Form IL-W-5-NR so Illinois stops withholding. This goes to the employer, not to Illinois Department of Revenue — and it is not retroactive, so file it before the first paycheck of the year.
- 2Resident return · Kentucky
File a Kentucky resident return reporting all of your income, including the wages earned in Illinois.
The two states, side by side
| Kentucky | Illinois | |
|---|---|---|
| Taxes wages | Yes — flat | Yes — flat |
| Reciprocity partners | 7 (Form 42A809) | 4 (Form IL-W-5-NR) |
| Convenience rule | No | No |
| Nonresident return | Form 740-NP | Form IL-1040 with Schedule NR |
| Credit for other-state tax | Schedule ITC | Schedule CR |
| Nonresident safe harbour | None published | 30 days |
| Local income tax | Yes | No |
| Revenue department | Kentucky Department of Revenue | Illinois Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Illinois and working in Kentucky gives:Reciprocal agreement — file the exemption form.
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.
- Remote worker: Kentucky → IllinoisHome state only
- 1099 contractor: Kentucky → IllinoisHome state, plus the client state if you work there
- Moved mid-year: Kentucky → IllinoisTwo part-year returns
Other Kentucky pairs
Questions people actually ask
I live in Kentucky and work in Illinois. Which state takes the tax out of my paycheck?
Only your home state taxes these wages. Illinois has agreed with Kentucky not to tax Kentucky residents on wages earned in Illinois, so the answer is a single Kentucky resident return — provided you actually hand Form IL-W-5-NR to your employer, because the exemption is not automatic.
Which state should my employer be withholding for?
Kentucky. Your employer should withhold Kentucky tax rather than Illinois tax on these wages, but only once you have given payroll Form IL-W-5-NR — the exemption is not automatic and it does not apply retroactively. If a Illinois line is showing on your pay stub, raise it with payroll now rather than at filing time.
What if Illinois tax was already withheld from my pay?
File Form IL-W-5-NR with your employer to stop it going forward, then recover what was already taken by filing a Illinois nonresident return for that year and claiming a refund of the full amount. Kentucky will still expect its own tax on the same wages, so do not treat the refund as a windfall.
How current is this?
The Kentucky and Illinois rules on this page were last checked against Kentucky Department of Revenue and Illinois 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
- Illinois Department of Revenue — individual income taxaccessed 2026-08-07