What is Reciprocity? Managing multi-state tax complexity in payroll

March 31, 2022
Kaleb Allmon

Software Engineer

Kaleb Allmon

As you take on new payroll customers, they’ll bring employees and contractors from all across the country. While this growth is exciting, it also means you’ll need to offer payroll support for remote workers – or those who simply live and work across state lines.

Paying workers across states can be trickier than you might think. This is because each state has an entirely different set of laws that affect payroll and withholdings. 

While it might feel overwhelming at first, Check is here to help. We’ve made it possible to build state reciprocity into your payroll business in 3 ways. Whether you want employees to opt in themselves, or build a completely custom flow – we’ll help you manage state-to-state complexity without the headache.

What is Reciprocity?

Most employees both live and work in the same state. However, some employees work in a neighboring state instead of their home state. In these situations, it can be a challenge to know which taxes apply. Which state taxes is this worker responsible for? How much should be withheld from their payroll? 

Certain states experience multi-state scenarios more than others, and so have put reciprocal agreements in place. A reciprocal agreement, also called reciprocity, is an agreement between two states that allows residents of one state (their home state), to request exemption from tax withholding in the other (their work state). This can save you the trouble of having to file multiple state returns.

A great example is an employee who is living in Virginia and works in Maryland, these states have a reciprocal agreement. This employee can ask their employer to stop withholding Virginia taxes and the employer will then need to begin collecting Maryland taxes.

Currently, there are 16 states (plus D.C.) that have some sort of reciprocal agreement: Arizona, Kentucky, Montana, Pennsylvania, Wisconsin, Illinois, Maryland, New Jersey, Virginia, Indiana, Michigan, North Dakota, Washington DC, Iowa, Minnesota, Ohio, West Virginia.

Check helps make multi-state withholdings simple

Check’s approach to multi-state withholdings eliminates the need for our partners to manage the complexities of reciprocity on their own. One of Check’s principles is to make payroll as simple as possible for our partners. And as we’ve done in the past, we’ve furthered our effort to minimize any jurisdiction-specific logic that our partners have to take on. Instead, all of this logic, from withholdings forms to tax calculation to filings, is managed by Check’s payroll platform.  

Check has 3 different ways we offer to our partners to manage reciprocity:

  • API: Opt employees into reciprocity via our API
  • Employee Onboard: Leverage Check’s pre-built Employee Onboard flow to direct an employee to opt themselves into reciprocity when applicable
  • Partner Console: Enable your payroll operations team to opt employees into reciprocity manually via our Partner Console.

Based on their use case, our partners choose which solution is right for them and their users. For some, this might be building a native employee onboarding flow on top of Check’s API. And for others, this might be leveraging one of Check’s no-code options, such as our Employee Onboard component. 

If you’d like to learn more, check out our Multi-state Taxation and Reciprocity Guide. Or, reach out to our team for a demo.

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