Create a payroll tax reciprocity

You can use reciprocal tax agreements between states or local tax jurisdictions to make sure taxes calculate appropriately based on where employees work and live.

Common reasons to use reciprocity:

• Change the unemployment (SUI) tax state based on where the employee lives
• Change the Withholding (SWH) tax state based on where the employee lives
• Calculate more than one unemployment or withholding state tax for an employee

Information

See information about setting up reciprocity between states that don't have the same kinds of state taxes.

Set up local reciprocity only between a single workplace/nonresident tax from one tax group and a single resident tax from a different tax group. If you try to reciprocate multiple taxes from the same tax group to a single tax from another group, the taxes involved can calculate incorrectly.

Within a state, set up a local reciprocity from a workplace/nonresident tax to a residence tax, or from a residence tax to a workplace/nonresident tax. Combining these two methods could result in tax calculation errors.

If you create a new tax ID to set up reciprocity, add the new tax ID to the appropriate tax group. The reciprocal tax must be in a tax group to calculate.

Example of tax reciprocity

An employee lives in Oregon and works in California. The employee's wages are $1,500. The reciprocal tax ID is ORSWH in the amount of $225, and the tax ID is CASWH in the amount of $150.

To set up a tax reciprocity

1. From Setup, select Taxes, Reciprocity.
2. Select State or Local as the reciprocal agreement tax level.
3. Press Tab.
4. Click List, select the Residence tax group ID, and click OK.
5. Click List, select the Work place tax group ID, and click OK.
6. In the Tax ID column, enter the tax ID for the state or local forfeiting the tax.
7. In the Reciprocal Tax ID column, enter the ID for the tax that you want to calculate instead of the work place tax.
8. In the Agree Type column, select the agreement type. This determines if it replaces the tax ID, balances the taxes, or takes both taxes.
   • Replace: The Reciprocal Tax ID replaces the Tax ID. The tax calculation for the Reciprocal Tax ID occurs instead of the tax calculation for the Tax ID. If Reciprocal Tax ID is blank, no tax calculates for either tax ID.
   • Balance: The amount for the Tax ID calculates and then subtracts from the amount for the Reciprocal Tax ID. Balance reciprocity doesn't affect the amount for the Tax ID.
   • Take Both: The full tax amount for both the Reciprocal Tax ID and the Tax ID calculates. This option is only available when you set up reciprocity agreements between states.
9. Click Accept line for each tax entry.
10. Click Accept table, then Close.

Set up Payroll to use a new state

How do I add a reciprocity in employee setup?

How do I set up tax reciprocity between states or local tax jurisdictions?