Illinois Income Tax Agreement With Bordering States

Daniel Rathburn is an associate editor at The Balance. He has over three years of experience working in print and digital media as a fact-checker and editor. Daniel holds a bachelor's degree in English and political science from Michigan State University.

In This Article In This Article

Woman checking smartphone at Chicago train station

Quite often, residents in one state might work in a neighboring state. To avoid having residents pay taxes in two states, the two neighboring states will form a reciprocity agreement. These agreements concern income taxes for those who work in one state but live in another. Under reciprocity, residents only pay income taxes to their home state, regardless of where they work.

Residents of states bordering Illinois can take advantage of such a reciprocal agreement.

Key Takeaways

Reciprocal Agreements

Many states across the U.S. have reciprocal agreements, sometimes called tax reciprocity, with bordering states. Normally, anyone earning income in a particular state must pay taxes to that state. This can result in workers being taxed twice if they actually live somewhere else.

For example, if you once lived in a state where you worked (and earned income there) and then worked again in what is now your home state, you'd need to file returns for total income earned in your home state.

Some states allow taxpayers to take a credit for income taxes paid to another state, and some states have reciprocal agreements. Either way, the end result is that the worker is taxed only in the state where they live.

Employers always withhold the local state taxes for their employees, but they're not required to withhold taxes for the state where the worker lives. This can result in out-of-state workers owing money, instead of receiving a refund, when tax time rolls around. Because of this situation, many workers make voluntary estimated quarterly payments to their own states to be on the safe side.

States With Illinois Tax Reciprocity

Illinois has a reciprocal tax agreement with four bordering states:

If you cross borders between Illinois and another state for work, you should talk to your employer about your withholding situation so you can ensure you're not surprised at tax time.

Living in Illinois and Working in Another State

An Illinois resident who works in Iowa, Kentucky, Michigan, or Wisconsin is only required to pay income tax to Illinois. These bordering states do not tax the wages of Illinois residents working in their jurisdictions.

You'll need to file Form IL-1040 at tax time. You'll report the income you earned in these reciprocal states to be taxed by Illinois. If the state you work in taxes you, you'll have to file the right form with that state to claim a refund.

Note

You're entitled to a refund if you're an Illinois resident and have had taxes withheld from your paycheck for any of these four bordering states. You cannot, however, take a credit for taxes withheld from these states on your Illinois return.

Living in Another State and Working in Illinois

You are not subject to Illinois income tax on wages, salaries, tips, or commissions received from employers in Illinois if you are a resident of Iowa, Kentucky, Michigan, or Wisconsin. However, this does not apply to any other type of income received in Illinois, such as lottery winnings.

Note

Income outside of your normal wages, salary, tips, or commissions is taxable in Illinois, regardless of residency.

What to Do If You Live in a State With Reciprocity

If you live in a state that has reciprocity with Illinois, there are a few steps you should take to make sure your records are up-to-date for tax time. The forms you need to fill out will depend on your situation, whether you're living in a state with a reciprocal agreement, and whether you've already had Illinois taxes withheld from your paycheck.

File Tax Form IL-W-5NR

You should file Form IL-W-5NR, "Employee's Statement of Nonresidence in Illinois," with your employer to certify that you live in one of the four states with reciprocity. This form will let your employer know to stop the tax withholding.

Moving? File Form IL-W-5

If you happen to move out of your current state and take up residence in Illinois, you must file Form IL-W-5, "Certificate of Residence in Illinois," with your employer. This form lets your employer know to withhold Illinois taxes.

Need a Refund? File Form IL-1040 and Schedule NR

If you had Illinois tax withheld from your paycheck when it shouldn't have been, you can claim a refund. To claim it, you'll need to file an Illinois tax return, which is ​Form IL-1040, and include Schedule NR for your status as a non-resident. You'll also need to include Form W-2c or an official letter from your employer confirming the error.

What States Does Illinois Have Reciprocity Agreements With?

Illinois has agreements with Iowa, Kentucky, Michigan, and Wisconsin. That means taxpayers who live in one of these four states won't have to pay to pay income taxes in both states.

What Happens If I Move to a State Different Than My Employer?

If you lived in a different state than the one in which your employer is based, your income may be subject to income tax in both states. In such cases, many states have what are called reciprocity agreements to not withhold income tax if the taxpayer resides in a neighboring state. Check with your employer about withholding status if you are planning to work remotely from a different state.

Was this page helpful? Thanks for your feedback! Tell us why!

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

  1. Illinois Department of Revenue. "What if I Live or Work in a State that Has a Reciprocal Agreement with Illinois?"
  2. Illinois Department of Revenue. "Illinois Department of Revenue-2021 Schedule NR."
Related Articles

Aerial view of urban street with houses

States With Local Income Taxes

 A man and woman renovating their new home

The California Tax Credit for First-Time Homebuyers

A team of workers installing a new roof on a building

States With Reciprocal Tax Agreements

Bookkeeper doing paperwork with tablet at restaurant

Federal Withholding: Income Tax, Medicare, and Social Security

Two women discussing financial documents while using laptop at table.

What Is Other Income on Form 1040?

Financial planning like a pro

What Happens When You Sell a Stock

Shot of a mature couple managing their paperwork together at home

Taxation of Social Security Benefits

Smiling woman giving man sitting on couch a red gift envelope

Is There a Gift Tax Between Spouses?

<a href=Employer showing new employee paperwork to fill out" width="282" height="188" />

How to Fill Out Your W-4 Form

Mother holding a newborn baby beside a window

Can You Claim Your Unborn Baby as a Dependent on Your Tax Return?

College student reading a book in class

What Is Considered a Full-Time Student for Taxes?

A couple prepares documents in a clean, well-lighted living room.

Is It Better to File Taxes Single or Married?

Employees at a laptop in a cafe determining sales tax

How to Handle Sales Taxes When You Sell Out of State

A man and a woman walk along the sidewalk in front of row houses in a town in England.

Do You Have to Pay U.S. Taxes on Sales of Foreign Property?

Smiling young woman behind the wheel of a car.

IRS Rules for Reporting Car Rental Expenses and Income

Smiling architect writing on papers tacked to a wall

What Is Form W-8BEN for Canadian Contractors? The Balance The Balance is part of the Dotdash Meredith publishing family. Newsletter Sign Up Newsletter Sign Up

We Care About Your Privacy

We and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.

We and our partners process data to provide:

Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. Measure content performance. Understand audiences through statistics or combinations of data from different sources. Develop and improve services. Use limited data to select content. List of Partners (vendors)