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A reciprocal agreement between states prevents an employee from having to file two or more tax
returns; one as a resident return in the state where he or she lives and one or more nonresident returns
in any other states where he or she works.
What is a reciprocal agreement?
A reciprocal agreement between states prevents an employee from having to file two or more tax
returns; one as a resident return in the state where he or she lives and one or more nonresident returns
in any other states where he or she works.
If there is no reciprocal agreement in place for the state where the employee is working,
is the employee responsible to report income to the residing state?
An employee has the responsibility to report personal income tax to the state in which they reside,
including where there is no reciprocal agreement in place. Failure to report income may subject the
individual to fines and penalties. Individual employees should consult with their tax professional to
determine their specific tax reporting responsibilities.
Which states currently have reciprocal agreements with SCO?
SCO has reciprocal agreements with New York and Illinois. This means that SCO will withhold and remit
personal income tax from wages or salaries for employees residing in New York and Illinois.
Does an employee teleworking in another state create a “nexus” for state tax
withholding? Stated differently, will the State be considered to be “doing business” in
the other state of tax purposes?
In order for a state to impose a tax, a connection must exist between the state and the potential
taxpayer.
The State of California and its departments and agencies are generally not engaged in actions that would
constitute interstate commerce. Therefore, the presence of a teleworking employee in another state
would not create a nexus for tax purposes.
What options are available on the form Employee Action Request (EAR), STD. 686, to
employees working out-of-state for tax reporting purposes?
Three options are available on the STD. 686:
1. Withhold CA personal income tax and file as a non-resident with the Franchise Tax Board (FTB)
2. Employee will need to file California Nonresident (NR) or Part-Year Resident Income Tax Return,
CA 540 NR, and Franchise Tax Board (FTB) will make the determination to process a refund of the
personal income tax. https://www.ftb.ca.gov/forms/2019/2019-540nr.pdf
3. File Exempt from California withholding
• On the EAR for State Allowances, the employee will indicate in Section E II:
o E08 - Single/Married