Wis. Admin. Code § Tax 2.02 — Reciprocity

Tax 2.02(1) (1) Purpose. This section explains the reciprocity agreements between Wisconsin and other states.

Tax 2.02(2) (2) Definitions. The following definitions pertain only to Wisconsin. Definitions of the same terms in other states may vary. In this section:

Tax 2.02(2)(a) (a) “Personal service income” means all salaries, wages, commissions and fees earned by an employee and all commissions and fees earned by a self-employed person in the conduct of a profession or vocation. Personal service income does not include income derived from activities involving the substantial use of capital or labor of others.

Tax 2.02(2)(b) (b) “Resident” means a natural person who is domiciled in this state.

Tax 2.02(3) (3) Wisconsin law.

Tax 2.02(3)(a) (a) Under s. 71.05 (2) , Stats., income earned by a nonresident individual for performing personal services in Wisconsin shall be excluded from Wisconsin gross income to the extent the individual’s state of residence imposes an income tax on the personal service income, if the state of residence allows either of the following:

Tax 2.02(3)(a)1. 1. A similar exclusion for personal service income earned by individuals domiciled in Wisconsin while working in that state.

Tax 2.02(3)(a)2. 2. A credit against the tax imposed by that state on the personal service income equal to the Wisconsin tax on the personal service income.

Tax 2.02(3)(b) (b) Under s. 71.64 (8) , Stats., a Wisconsin employer of a nonresident individual residing in a state with which Wisconsin has a reciprocity agreement under sub. (4) need not withhold Wisconsin income tax from personal service income earned in Wisconsin by the nonresident.

Tax 2.02(4) (4) Agreements with other states.

Tax 2.02(4)(a) (a) Wisconsin has formal reciprocity agreements with:

Tax 2.02(4)(a)1. 1. Kentucky, for the years beginning on and after January 1, 1961.

Tax 2.02(4)(a)2. 2. Illinois, for the years beginning on and after January 1, 1971.

Tax 2.02(4)(a)3. 3. Michigan, for income earned after October 1, 1967 and years beginning on and after January 1, 1968.

Tax 2.02(4)(b) (b) Wisconsin practices reciprocity with Indiana, since prior to 1960, on the basis of an informal agreement and acquiescence by Wisconsin and Indiana.

Tax 2.02(5) (5) Effect of reciprocity.

Tax 2.02(5)(a) (a) Personal service income included under reciprocity agreements is taxed by an employee’s state of residence rather than by an employee’s state of employment. Wisconsin will not tax personal service income earned in Wisconsin by residents of states with which Wisconsin has reciprocity, and those states may not tax personal service income which a Wisconsin resident earns in those states, except as described in subs. (6) , (7) , and (8) .

Tax 2.02(5)(b) (b) For personal service income included under reciprocity agreements, an employer need only withhold income tax for the state of residence of an employee.

Tax 2.02(5)(c) (c) Federal law regulates withholding on wages earned by employees engaged in interstate transportation activities.

Tax 2.02(6) (6) Provisions of agreement with Illinois.

Tax 2.02(6)(a) (a) The reciprocity agreement with Illinois is limited to “wages, salaries, commissions, and any other form of remuneration paid to employees for personal services.” However, the agreement does not extend to fees of lawyers, accountants and other self-employed persons deriving personal service income, to lottery winnings, or to persons identified in pars. (c) and (d) .

Tax 2.02(6)(b) (b) The Illinois Income Tax Act, Article 15, section 1501 (a) (20), defines a resident as “an individual (i) who is in this State for other than a temporary or transitory purpose during the taxable year; or (ii) who is domiciled in this State but is absent from the State for a temporary or transitory purpose during the taxable year.” Because of the differences in the definition of resident for Illinois and Wisconsin purposes, a person domiciled in Wisconsin may simultaneously be a resident of Illinois, or a person may be domiciled in Illinois but not be a resident of Illinois.

Tax 2.02(6)(c) (c) The reciprocity agreement with Illinois does not apply to any form of compensation described in par. (a) paid on or after January 1, 1974 to any individual who, at the time of payment, is simultaneously a resident of Illinois and a domiciliary of Wisconsin. All income of this person is taxable by Wisconsin. However, a credit against Wisconsin income tax may be claimed for income tax paid to Illinois.

Tax 2.02(6)(d) (d) An individual who is domiciled in Illinois but is not a resident of Illinois is subject to the Wisconsin income tax on income earned in Wisconsin.

Tax 2.02(7) (7) Provisions of agreement with Michigan. The reciprocity agreement with Michigan is limited to income from “personal services, including salaries, wages or commissions.” The agreement does not include income which Michigan considers to be “business income,” such as fees of self-employed persons such as professionals.

Tax 2.02(8) (8) Provisions of agreements with Indiana and Kentucky. The reciprocity agreements with Indiana and Kentucky are limited to wages, salaries and commissions.

Tax 2.02(10) (10) Procedure for nonresidents.

Tax 2.02(10)(a) (a) Nonresident persons employed in Wisconsin and residing in a state with which Wisconsin has reciprocity shall file form W-220, “Nonresident Employee’s Withholding Reciprocity Declaration,” with their Wisconsin employers to be exempt from withholding of Wisconsin income taxes. Upon receipt of this form, Wisconsin employers may not withhold Wisconsin income tax from Wisconsin personal service income of the employee.

Tax 2.02(10)(c) (c) The reciprocity exclusion does not apply to Wisconsin lottery winnings of nonresident persons.

Tax 2.02(11) (11) Procedure for Wisconsin residents.

Tax 2.02(11)(a) (a) Wisconsin residents employed in a state with which Wisconsin has reciprocity shall file form 1-ES, “Wisconsin Estimated Tax Voucher,” with the Wisconsin department of revenue if their out-of-state employers do not withhold Wisconsin income tax from their personal service income and if they will have a sufficient Wisconsin tax liability to be required to make payments of estimated tax.

Tax 2.02(11)(b) (b) Wisconsin residents may have their employers cease withholding the other state’s income tax from their personal service income and may claim a refund from that state if income taxes are withheld from their personal service income after the effective date of a reciprocity agreement.

Tax 2.02(11)(c) (c) Wisconsin residents earning personal service income in states where it is taxable by the other state may claim a credit on their Wisconsin income tax returns for net income taxes paid to these states.

Tax 2.02(12) (12) Delinquent taxes. Reciprocity agreements do not affect the withholding of delinquent Wisconsin income taxes, interest, penalties and costs under s. 71.91 (7) , Stats.