Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. Under these agreements, one state will not tax the others’ residents on employee compensation that is subject to employer withholding. Reciprocal agreements apply only to compensation and withholding, and do not apply to any other class of income
Example: Mike is a resident of Pennsylvania and commutes to his job in New Jersey. He also has rental income from a New Jersey summer cottage. Mike must report as PA taxable income both his compensation and his rental income.
He must request a refund of the NJ income tax withheld from his compensation. He may not claim a credit for the income tax paid to New Jersey on his compensation on their PA-40 Return, but he may claim a credit for taxes paid to NJ on his rental income. He must attach a copy of his W-2 statement showing the NJ withholding and a copy of his NJ nonresident tax return to his PA return when it is filed.