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For employees who live in one state but work in another, this is an accord between the two states that prevents double taxation, excess withholding, and the need to file tax returns in both states. As the resident of one state, you may be exempt from tax withholding in the state where you work. To avail yourself of a reciprocal agreement, you usually must file an exemption form with your employer. For details on the taxation of state-to-state mobile employees who have nonqualified deferred compensation, see the related FAQ on this website.