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I live in the state of Pennsylvania and work from home full time for a company in Virginia. I'm having my employer take out local Taxes based on where I live in Pennsylvania. Is this correct? Do I have to pay local taxes based on where I live in Pennsylvania even though there are no local taxes where the company I work for is located?

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    For those not familiar with Pennsylvania, Rich is asking how to handle LOCAL taxes in PA, not state income tax.
    – Adam Wise
    Sep 11 '21 at 18:39
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I live in the state of Pennsylvania and work from home full time for a company in Virginia.

That means that you are not a resident of Virginia, because even though the company is located in Virginia you do almost all the work while sitting in Pennsylvania. Therefore you will not owe Virginia income state income tax.

Even if you came into the Virginia office, you still wouldn't owe Virginia income tax due to reciprocity.

Virginia has reciprocity with several other states. This allows Virginia residents who have a limited presence in those states to be taxed only by Virginia. Likewise, residents of the other states who have a limited presence in Virginia are taxed only by their home states.

States that have reciprocity with Virginia are:

  • District of Columbia
  • Kentucky
  • Maryland
  • Pennsylvania
  • West Virginia

If you meet the reciprocity criteria, you are exempt from filing requirements and income tax in your state of non-residence.

They then explain the rules for non-residents of Virginia:

Who is exempt?
[skipping the sections tht don't apply to Pennsylvania residents]

Maryland, Pennsylvania, or West Virginia Residents who:

  • Are taxed in your home state, and
  • Are present in Virginia for 183 days or less during the year, and
  • Do not maintain an abode, such as a house or apartment, in Virginia, and
  • Receive only wage or salary income in Virginia.

If you are exempt from Virginia income tax, complete the Form VA-4 and give it to your employer.

If you employer does withold money for Virginia state taxes:

Resolving withholding errors

Nonresidents:

If you are a resident of a reciprocity state, accept employment in Virginia, and meet the criteria for exemption, complete Form VA-4 to certify your exemption and give the form to your employer. You will need to re-certify your exemption every year.

If your employer withholds Virginia income tax and you find out that you are exempt, correct your withholding information with your employer for the future, and file Form 763-S to claim a refund.

So if you don't live in Virginia, don't own property in Virginia, don't have a business in Virginia you don't have to pay tax to Virginia: you pay taxes to Pennsylvania.

I'm having my employer take out local Taxes based on where I live in Pennsylvania. Is this correct? Do I have to pay local taxes based on where I live in Pennsylvania even though there are no local taxes where the company I work for is located?

You should file the Pennsylvania version of the W-2 and have your employer withhold income taxes for Pennsylvania. As far as Pennsylvania and Virginia are concerned you live in Pennsylvania and pay taxes to Pennsylvania.

This is from Pennsylvania regarding reciprocity

I am a PA resident working in a reciprocal state. How do I file my PA return?

Answer ID 869 | Published 02/12/2003 12:26 PM |
Updated 05/14/2021 02:53 PM

I am a PA resident working in a reciprocal state. How do I file my PA return?

As a PA resident working in one of the reciprocal agreement states (Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia) your compensation is taxable to PA, not the reciprocal state. It is your responsibility to notify your employer that you are a resident of PA and that your employer should withhold PA tax from your pay and not the income tax of the reciprocal agreement state.

Your employer should withhold PA tax and send it to the department. If your employer does not withhold PA tax, you may be required to make PA estimated payments.

If your out-of-state employer does not withhold PA tax, you must report your compensation as taxable income to Pennsylvania and pay the tax. Your Pennsylvania tax return can be filed easily and electronically through our tax portal known as myPATH. You can then file a return in the other state, as a nonresident, and receive a refund of the state tax withheld.

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  • "Even if you came into the Virginia office, you still wouldn't owe Virginia income tax due to reciprocity." you might want to clarify this is not universally true. If you live in a state that doesn't have reciprocity or any state income tax you will owe VA taxes. I know because I live in Texas and travel there for work and have had to pay VA tax a few times.
    – JohnFx
    Sep 11 '21 at 17:42
  • Since I go out of my way to list the only states that have reciprocity with Virginia, then then it is clear that the only states don't have reciprocity. I also list the states that have reciprocity with Pennsylvania. Sep 11 '21 at 19:44

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