Pennsylvania vs. Ohio: Tax Rules for Living in One State and Working in Another

Living in one state while working in another can complicate tax obligations. For residents of Pennsylvania and Ohio, understanding tax rules is crucial to avoid overpaying or facing penalties. Fortunately, agreements between these states help simplify the process.

While these agreements reduce double taxation, key factors like withholding, filing requirements, and local taxes still require attention. Knowing how these elements apply ensures compliance with both states’ laws and helps manage finances effectively.

Residency Requirements

Residency determines which state has the right to tax income. Pennsylvania and Ohio have different criteria, and misunderstanding them can lead to unexpected liabilities.

Pennsylvania considers you a resident if you maintain a permanent home in the state and spend more than 183 days there during the tax year. Even if you work in Ohio, Pennsylvania will still treat you as a resident if you meet these conditions. The state also recognizes domicile—your true, fixed home. If you leave Pennsylvania for work but intend to return, you may still be considered a resident.

Ohio presumes residency if you have an Ohio domicile, but this can be rebutted by meeting the “Ohio Nonresident Statement” requirements. To qualify as a nonresident, you must have fewer than 213 contact periods in Ohio and maintain a permanent home elsewhere. A contact period is any part of two consecutive days spent in the state. Meeting these conditions and filing the required affidavit ensures Ohio will not tax you as a resident.

Reciprocity Agreements

Pennsylvania and Ohio have a reciprocity agreement allowing residents to pay income tax only to their home state, eliminating the need to file a nonresident return in the work state. For example, a Pennsylvania resident employed in Ohio does not owe Ohio state income tax on wages, and vice versa.

To benefit from this agreement, employees must submit the appropriate exemption form to their employer. Pennsylvania residents working in Ohio should complete Ohio Form IT 4NR to prevent Ohio tax withholding. Ohio residents working in Pennsylvania must file Pennsylvania Form REV-419 EX. Without these forms, the employer may default to withholding taxes for the work state, requiring additional steps to recover the withheld amounts.

This agreement applies only to wages and salaries. Other income, such as business profits, rental earnings, and investments, remains taxable in the state where it is generated. Individuals with these income sources should review state tax laws to determine their obligations.

Income Tax Withholding

Employers must ensure correct state income tax withholding. Although Pennsylvania and Ohio have a reciprocity agreement, payroll departments must properly process withholding to prevent underpayment penalties or overpayment requiring refunds.

Pennsylvania has a flat state income tax rate of 3.07%, while Ohio uses a progressive system ranging from 2.75% to 3.99% for 2024. Pennsylvania residents working in Ohio may notice a paycheck discrepancy if Ohio tax is mistakenly withheld instead of Pennsylvania tax. Employers must apply the correct tax rates and file appropriate withholding reports, such as Pennsylvania Form PA-W3 or Ohio IT 941.

Withholding errors can also affect local taxes, particularly for Pennsylvania residents. Many Pennsylvania municipalities impose an earned income tax (EIT), which employers must collect and remit. If an Ohio employer does not withhold the correct local tax, employees may need to make quarterly estimated payments to their Pennsylvania municipality to avoid penalties. Employers unfamiliar with Pennsylvania’s local tax system should use the Pennsylvania Local Earned Income Tax Collector Directory to determine correct rates and jurisdictions.

Filing Multiple Returns

Even with reciprocity, some situations require filing tax returns in both states. While residents typically owe income tax only to their home state, additional income sources or business activities may necessitate filing in both jurisdictions.

Non-wage income, such as rental profits from Ohio properties or business income from an Ohio-based sole proprietorship, requires filing an Ohio nonresident return (Form IT 1040) to report and pay tax on that income. Pennsylvania residents in this situation still file their PA-40 return and may qualify for a Pennsylvania tax credit for amounts paid to Ohio, using PA Schedule G-L. The reverse applies to Ohio residents with Pennsylvania-based income.

If Ohio tax was mistakenly withheld from a Pennsylvania resident, they must file an Ohio return to claim a full refund. This involves completing the IT 1040 and Schedule of Credits. Failing to do so could result in paying tax to both states unnecessarily.

Local Taxes

State income taxes are only part of the equation. Local taxes add complexity, especially for Pennsylvania residents, as the state has an extensive municipal earned income tax (EIT) system. Unlike Ohio, where local taxes are primarily collected at the city level, Pennsylvania’s system is managed by various tax collection districts with different rates and filing requirements.

For Pennsylvania residents working in Ohio, local tax obligations depend on their home municipality. If their Pennsylvania municipality imposes an EIT, they must pay it, even if their Ohio employer does not withhold it. Some Ohio cities, such as Columbus and Cincinnati, levy local income taxes on nonresidents working there. However, Pennsylvania residents can typically claim a credit for these taxes against their Pennsylvania local EIT liability, preventing double taxation. To ensure compliance, individuals should verify local tax rates using the Pennsylvania Local Earned Income Tax Collector Directory and determine whether estimated payments are needed.

Ohio residents working in Pennsylvania may also face local tax considerations. While Pennsylvania municipalities impose EIT on residents, nonresidents are generally not subject to these taxes unless they work in a municipality that levies a nonresident tax. If an Ohio resident’s Pennsylvania employer withholds local taxes incorrectly, they may need to file for a refund with the appropriate Pennsylvania tax collector. Understanding how local taxes interact with state tax obligations is key to avoiding unexpected liabilities and ensuring accurate withholding.