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Illinois has income tax reciprocity agreements with Iowa, Kentucky, Michigan, and Wisconsin. If you live in one of those states and earn employee compensation working in Illinois, you can generally claim exemption from Illinois tax on that compensation by giving your employer Form IL-W-5-NR. If you live in Illinois and work in one of those states, Illinois still taxes your covered wages.
Which states have an income tax agreement with Illinois?
Illinois recognizes reciprocal income tax agreements with Iowa, Kentucky, Michigan, and Wisconsin. These agreements apply to covered employee compensation, including salaries, wages, tips, and commissions. Illinois’s 2025 Schedule NR instructions describe the exemption for qualifying residents of those states who earn employee compensation in Illinois.
How reciprocity affects your wages
| Where you live | Where you work | Illinois treatment of covered employee compensation |
|---|---|---|
| Iowa, Kentucky, Michigan, or Wisconsin | Illinois | Generally exempt from Illinois income tax if you qualify and claim the exemption with your employer. |
| Illinois | Iowa, Kentucky, Michigan, or Wisconsin | Taxable by Illinois. Illinois says the reciprocal states do not tax this compensation of Illinois residents. |
Reciprocity determines which state taxes the covered wages; it does not make them tax-free. Illinois residents must report compensation from employment in these reciprocal states as Illinois income. If another state’s income tax was withheld from an Illinois resident’s wages, the employee may need to seek a refund from the state that withheld it; Illinois does not allow that withholding as a credit on the Illinois return. See the Department of Revenue’s filing requirements guidance.
If you live in a reciprocal state and work in Illinois
- Complete Form IL-W-5-NR, Employee’s Statement of Nonresidence in Illinois, and submit it to your Illinois employer to claim exemption from Illinois withholding on covered compensation.
- If you change your state of residence, notify your employer within ten days, as the form instructs.
- Keep a copy for your records. Your employer keeps the submitted form on file.
The Illinois Department of Revenue’s current withholding forms page is the place to get the applicable form. The PDF’s revision mark alone does not establish that the agreement or its rules have changed.
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If Illinois tax was withheld from your paycheck
If you are a qualifying resident of Iowa, Kentucky, Michigan, or Wisconsin and Illinois tax was withheld in error, you may be able to request a refund by filing Form IL-1040 with Schedule NR, subject to the instructions for the tax year. Illinois asks taxpayers to support a claim of erroneous withholding with an employer statement or corrected W-2, as applicable. Consult the Department of Revenue’s current income tax forms and instructions for the relevant year.
When a return may still be required
The reciprocal exemption is not a blanket exemption from Illinois filing requirements. It covers qualifying employee compensation, not all Illinois-source income. A reciprocal-state resident may still need to file Form IL-1040 and Schedule NR if they had other Illinois-source income or are claiming a refund of Illinois income tax withheld in error. Use the return instructions for the relevant tax year to determine whether you must file.
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Schedule NR instructions also address certain military-spouse situations. That relief is legally separate from Illinois’s four-state reciprocity agreements, even though the topics appear in the same withholding and return materials.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Check the tax year on the forms
The detailed Schedule NR instructions referenced here are for tax year 2025. Illinois’s forms index distinguishes 2025 forms for wages paid during 2025 from 2026 forms for wages paid beginning January 1, 2026. Select the forms and instructions for the year your wages were paid; procedures and filing requirements should not be assumed to carry over unchanged.
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