Do PA and NY Have a Reciprocal Tax Agreement?

Pennsylvania and New York do not have a reciprocal tax agreement. If you live in one state and work in the other, both states tax that income, you file returns in both, and a resident credit prevents literal double taxation. Because Pennsylvania’s flat 3.07% rate sits well below New York’s progressive rates (which reach up to 10.9%), the credit math almost always leaves cross-border workers paying the higher of the two states’ rates on their work income.

Which States Pennsylvania Actually Has Reciprocity With

A reciprocal agreement lets you skip the work state’s income tax entirely: your employer withholds only your home state’s tax, and you file only one state return. Pennsylvania has these agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia.¹

New York is not on that list, and it doesn’t have a reciprocal income tax agreement with any state. Every nonresident earning income in New York owes New York income tax on those earnings, and every New York resident earning income elsewhere owes their home state tax on the same earnings. That absence of reciprocity is what drives the paperwork and the higher cost of a PA-NY commute.

How Both States Tax the Same Income

Without reciprocity, the work state taxes your earnings first. A Pennsylvania resident working in New York owes New York income tax on New York wages. Pennsylvania then taxes the same resident on worldwide income, including those New York wages.² It works the same way in reverse: a New York resident earning wages in Pennsylvania owes Pennsylvania’s 3.07% flat tax on those earnings, plus New York’s tax on all income.

To prevent genuine double taxation, both states offer a resident tax credit. Your home state reduces your tax bill by the amount you already paid the work state, subject to a cap. The credit stops you from paying two full bills on the same dollar, but it doesn’t equalize the rates.

What the Resident Credit Actually Means for Your Bill

Each state limits the credit to the lesser of what you paid the other state or what your home state would have charged on that same income. Because Pennsylvania and New York have very different rate structures, the cap hits differently depending on which way you commute.

Pennsylvania caps its credit at 3.07% of the income you earned in the other state.³ If you’re a Pennsylvania resident who paid New York 6% on $100,000 of wages, your Pennsylvania credit maxes out at $3,070, not the $6,000 you actually sent to New York. Your Pennsylvania tax on that income washes to zero, but you still paid $6,000 total. You effectively pay New York’s rate.

New York handles the cap differently. The resident credit cannot reduce your New York tax below what you would have owed if the out-of-state income were simply excluded from your return.⁴ Since Pennsylvania’s 3.07% rate is below every New York bracket, a New York resident working in Pennsylvania gets a full credit for the Pennsylvania tax paid, then owes New York the difference.

The practical result cuts the same way in both directions. Cross-border workers between these two states almost always pay an effective rate on their work income equal to New York’s rate. The only real financial advantage of Pennsylvania residency shows up on income earned inside Pennsylvania, where you pay 3.07% instead of New York’s higher brackets.

How to File Your Returns

File the nonresident return with your work state first, then file your resident return and claim the credit. The order matters because the credit depends on knowing exactly what you owe the work state.

If You Live in Pennsylvania and Work in New York

Start with New York Form IT-203, the Nonresident and Part-Year Resident Income Tax Return, reporting only your New York source income. You must file IT-203 if you had New York source income and your federal adjusted gross income exceeds the New York standard deduction.⁵

Then file Pennsylvania Form PA-40, reporting all of your income from every source.² Attach PA Schedule G-L to claim the resident credit for taxes paid to New York, and include a copy of your completed IT-203 along with your W-2s showing New York wages and withholding.³ The credit on Schedule G-L is the lesser of the New York tax you paid or 3.07% of the taxable income you earned in New York, so your Pennsylvania liability on New York wages usually drops to zero.

If You Live in New York and Work in Pennsylvania

File Pennsylvania Form PA-40 as a nonresident, reporting only Pennsylvania-source income. Any resident, part-year resident, or nonresident who earns at least $1 in Pennsylvania taxable income must file.² Your employer should have withheld 3.07% from your paychecks.

Then file your New York resident return, reporting all income, and attach Form IT-112-R to claim the credit for taxes you paid Pennsylvania.⁴ Because Pennsylvania’s rate is well below New York’s, the credit covers the full amount of Pennsylvania tax you paid, and you owe New York the difference.

The Remote Work Trap: New York’s Convenience Rule

Working from home in Pennsylvania doesn’t necessarily get you out of New York tax. New York applies a “convenience of the employer” test that can tax your income even on days you never leave Pennsylvania. If your assigned or primary office is in New York, any day you work from your Pennsylvania home counts as a New York work day unless your home office qualifies as a “bona fide employer office” under New York’s criteria.⁶

The distinction is necessity versus convenience. If you work from home because your employer requires it and has no New York office available to you, those days count as out-of-state days. If you telecommute because you prefer it, because your commute is long, or because your employer allows hybrid schedules, New York treats those home-office days as New York work days.⁶

The bar for a bona fide employer office is high. A desk and an internet connection in Pennsylvania won’t clear it. Your employer generally needs to have established the home office as a genuine work location with specific business reasons for it. Many Pennsylvania residents who work remotely for New York employers end up owing New York income tax on their full salary, not just the days they physically commuted. If you’re on a hybrid schedule, allocate the days carefully on your IT-203, because New York audits this aggressively.

Philadelphia and New York City Local Taxes

State income tax isn’t the only layer. Both cities add complications, and they treat nonresidents very differently.

Philadelphia’s Earnings Tax

Philadelphia imposes an Earnings Tax of 3.74% on residents’ wages regardless of where those wages are earned.⁷ If you live in Philadelphia and commute to New York, you owe this tax on top of New York state income tax. Philadelphia does not offer a credit against its Earnings Tax for state income taxes paid to another state.⁸ You can still claim the Pennsylvania state-level credit on Schedule G-L for New York taxes, but the Philadelphia tax sits on top with no offset.

A Philadelphia resident earning $100,000 in New York could owe roughly 6% to New York plus 3.74% to Philadelphia. The Pennsylvania credit zeroes out the state liability, but the combined effective rate on those wages runs close to 10% before federal taxes.

New York City Income Tax

New York City imposes its own income tax on top of the state tax, with rates ranging from about 3.1% to 3.9%. It applies only to New York City residents. If you live in Pennsylvania and work in Manhattan, you owe New York State income tax but not the separate NYC tax. Check your paycheck to make sure your employer isn’t withholding NYC tax by mistake. If they are, you can claim a refund on your IT-203.⁵

Withholding and Estimated Payments

When you work in a non-reciprocal state, your employer typically withholds only for the work state. A New York employer will withhold New York state tax from a Pennsylvania resident’s paycheck but usually won’t withhold Pennsylvania tax. For most PA residents working in New York, the resident credit zeroes out the PA bill anyway, so nothing is due at filing.

The bigger withholding problem hits New York residents working in Pennsylvania. A Pennsylvania employer withholds 3.07% for Pennsylvania, but you still owe New York’s higher rate on the same income. If no one is withholding for New York during the year, you may need to make quarterly estimated payments to avoid underpayment penalties. Check your projected New York liability against your withholding early in the year and adjust before the gap grows.

1
Pennsylvania Department of Revenue. Employee’s Nonwithholding Application Certificate REV-419
2
Pennsylvania Department of Revenue. PA Personal Income Tax Guide – Brief Overview and Filing Requirements
3
Pennsylvania Department of Revenue. Resident Credit for Taxes Paid PA-40/PA-41 G-L
4
New York State Department of Taxation and Finance. Instructions for Form IT-112-R New York State Resident Credit
5
New York State Department of Taxation and Finance. Instructions for Form IT-203 Nonresident and Part-Year Resident Income Tax Return
6
New York State Department of Taxation and Finance. TSB-M-06(5)I Convenience of the Employer Test
7
City of Philadelphia. Earnings Tax (Employees)
8
City of Philadelphia. Request a Refund for Taxes Paid to Local Jurisdictions