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Reciprocity is an agreement between two states that lets an employee who lives in one state and works in another withhold income tax only in their home (resident) state, instead of in both. As referenced in Required taxes, nexus is only one factor Payroll Point evaluates. Reciprocal agreements and nonresident withholding rules are another. To claim reciprocity, an employee typically files a nonresident certificate (sometimes called a nonresident exemption certificate) with their employer for the work state. Payroll Point models this through the nonresident certificate flag: when it’s on, the employee is treated as exempt from work-state withholding and subject only to home-state withholding.
“Nonresident certificate” is a generic term in Payroll Point and doesn’t always correspond to a dedicated form. For example, for an employee working in Virginia, it corresponds to the checkbox on line 3 of Virginia Form VA-4.

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Nonresident certificate on vs. off

  • On: The employee has a nonresident certificate on file for the work state. Payroll Point passes this flag to tax processing so work-state withholding can be treated as exempt under reciprocity when applicable, and home-state withholding can apply instead.
  • Off: The employee does not have a nonresident certificate on file. Payroll Point returns the work-state withholding tax as required when applicable, in addition to any other applicable required taxes (for example, work-state SUI, which isn’t affected by the certificate).

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Where to set it

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Reciprocity, nexus, and nonresident withholding together

Nexus, reciprocity, and general nonresident withholding rules can all affect the same lookup, and Payroll Point evaluates them together rather than in isolation:
  • Nexus (set on the home location) determines whether the employer’s home-state tax obligations are included in the result at all.
  • Nonresident certificate (set on the work location) determines whether the employee is exempt from work-state withholding under a reciprocity agreement.
  • Even without a reciprocity agreement or a nonresident certificate on file, a state’s own nonresident withholding rules (for example, income thresholds or courtesy withholding) can still change which taxes apply.
For a walkthrough of how nexus changes the taxes returned for a two-state scenario, see the nexus example.