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Multi-State Withholding

Multi-State Employer and State Tax Reciprocal Agreements Knowledge Base Article #

Overview #

This knowledge base article provides information on managing payroll for multi-state employers and understanding state tax reciprocal agreements using ProPay payroll software. It covers essential aspects of setting up multi-state employers, handling state tax withholding, and navigating reciprocal agreements between states.

Table of Contents #

  1. Multi-State Employer Setup
  2. State Tax Reciprocal Agreements
  3. Single State Withholding
  4. Two-State Withholding
  5. Reciprocal Agreement State List
  6. Troubleshooting
  7. Additional Resources

Multi-State Employer Setup #

If an employer operates in more than one state or needs to withhold taxes for multiple states, follow these steps:

  1. Go to the Employer Set-Up Screen-5 in ProPay.
  2. Add up to 4 additional states for a total of 5 states per employer.

State Tax Reciprocal Agreements #

State tax reciprocal agreements are arrangements between states that allow employees who work in one state but live in another to only pay income taxes to their state of residence. Key points:

  • Most states require income tax to be paid on all income earned within the state, including by non-residents.
  • Reciprocal agreements help avoid double taxation for employees working across state lines.
  • Employees can typically file a form to claim exemption from withholding in the work state.
  • Employers may choose to withhold taxes for the employee’s state of residence, even if not mandatory.

Single State Withholding #

To set up single state withholding:

  1. Go to the Employee Edit/Change screen in ProPay.
  2. Select the appropriate Tax state for the employee.

Two-State Withholding #

For employees subject to withholding from two states or voluntarily withholding taxes from a second state:

  1. Go to the Employee Edit/Change screen in ProPay.
  2. Click on the TaxStatus/Exempt button.
  3. Fill in the following fields:
    a. Select Additional withholding State (If Applicable)
    b. Withhold this Percent of Gross
    c. Plus this fixed amount

Note: You may enter either a percent, a fixed amount, or both.

Reciprocal Agreement State List #

For a comprehensive list of states with reciprocal agreements and their respective exemption forms, please refer to the chart in the ProPay help menu or visit our website at https://www.Paysoft.com.

Troubleshooting #

Common Issues and Solutions #

  1. Unable to add additional states for an employer
    • Ensure you are on the Employer Set-Up Screen-5.
    • Verify that you have not exceeded the maximum of 5 states per employer.
    • Check your user permissions to confirm you have the rights to modify employer settings.
  2. Employee’s tax withholding is incorrect
    • Review the Employee Edit/Change screen to ensure the correct Tax state is selected.
    • For two-state withholding, verify that the additional withholding state and percentages/amounts are correctly entered.
  3. Reciprocal agreement form not accepted
    • Confirm that the form is the most current version for the relevant state.
    • Ensure all required fields on the form are completed accurately.
    • Verify that the states involved have a valid reciprocal agreement in place.

If you encounter persistent issues, please contact ProPay support for further assistance.

Additional Resources #

  • For more detailed information and step-by-step guides, access our help menu within the ProPay payroll software.
  • Visit our website at https://www.Paysoft.com for additional resources, including frequently asked questions and video tutorials.

We value your feedback! If you have suggestions for improving this knowledge base article or encounter any issues not addressed here, please contact our support team.

This list is accurate as of September, 2025, and the links are all active as of that date. If anyone using this chart finds an outdated link, please let us know

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StateState with Reciprocal Agreement Exemption Form
District of ColumbiaAnywhere except District of ColumbiaD-4Ahttps://www.trade.gov/jobs/forms/d4a-certificate-of-nonresidence-in-dc.pdf
IllinoisIowa, Kentucky, Michigan, WisconsinIL-W-5-NRhttps://www2.illinois.gov/rev/forms/withholding/Documents/currentyear/il-w-5-nr.pdf
IndianaKentucky, Michigan, Ohio, Pennsylvania, WisconsinWH-47https://www.in.gov/dor/4100.htm
IowaIllinois44-016https://tax.iowa.gov/sites/files/idr/forms1/EmployeesStatementOfNonresidence%2844016%29_0.pdf
KentuckyIllinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin42A809https://revenue.ky.gov/Forms/42A809.pdf
MarylandDistrict of Columbia, Pennsylvania, Virginia, West VirginiaMW507https://forms.marylandtaxes.gov/current_forms/mw507.pdf
MichiganIllinois, Indiana, Kentucky, Minnesota, Ohio, WisconsinMI-W4https://www.michigan.gov/documents/taxes/MI-W4_370050_7.pdf
MinnesotaMichigan, North DakotaMWRhttps://mn.gov/mmb/assets/mwr_form_tcm1059-128581.pdf
MontanaNorth DakotaMW-4https://app.mt.gov/myrevenue/Endpoint/Form/367
New JerseyPennsylvaniaNJ-165https://www.state.nj.us/treasury/taxation/pdf/current/nj165.pdf
North DakotaMinnesota, MontanaNDW-Rhttps://www.nd.gov/tax/data/upfiles/media/ndwrfillable.pdf?20250816142536
OhioIndiana, Kentucky, Michigan, Pennsylvania, West VirginiaIT-4NRhttps://www.onu.edu/files/wth_it4nr.pdf0_.pdf
PennsylvaniaIndiana, Maryland, New Jersey, Ohio, Virginia, West VirginiaREV-419https://www.revenue.pa.gov/FormsandPublications/FormsforBusinesses/EmployerWithholding/Documents/rev-419.pdf
VirginiaDistrict of Columbia, Kentucky, Maryland, Pennsylvania, West VirginiaVA-4https://www.tax.virginia.gov/sites/default/files/taxforms/withholding/any/va-4-any.pdf
West VirginiaKentucky, Maryland, Ohio, Pennsylvania, VirginiaWV/IT-104 rhttps://tax.wv.gov/Documents/TaxForms/it104.pdf
WisconsinIllinois, Indiana, Kentucky, MichiganW-220https://www.revenue.wi.gov/TaxForms2017through2025/w-220.pdf