Oklahoma Reciprocal Tax Agreement: What it is and How it Works
If you live and work in Oklahoma, chances are you’ve heard of the state’s reciprocal tax agreement with other states. But what exactly is this agreement, and how does it affect your taxes? In this article, we’ll break down everything you need to know about the Oklahoma reciprocal tax agreement.
What is the Oklahoma Reciprocal Tax Agreement?
The Oklahoma reciprocal tax agreement is an agreement between Oklahoma and certain other states that allows employees who live in one state and work in another to pay income taxes only to their state of residence. In other words, if you live in Oklahoma and work in a state that has a reciprocal tax agreement with Oklahoma, you won’t have to pay income tax to both states.
Currently, the following states have a reciprocal tax agreement with Oklahoma:
– Arkansas
– Colorado
– Kansas
– Missouri
– New Mexico
– Texas
How Does it Work?
Let’s say you live in Oklahoma but work in Arkansas, which has a reciprocal tax agreement with Oklahoma. When you start working in Arkansas, you’ll need to fill out Form AR-NRMAS, which stands for Arkansas Nonresident Military Spouse Withholding Exemption Certificate. Even if you’re not a military spouse, this is the form you’ll use to claim exemption from Arkansas income tax.
On the form, you’ll need to provide your personal information, including your name, address, and Social Security number, as well as your employer’s information. You’ll also need to indicate that you’re claiming exemption based on the reciprocal tax agreement between Oklahoma and Arkansas.
Once you’ve filled out the form, you’ll give it to your employer in Arkansas. Your employer will then withhold Oklahoma income tax instead of Arkansas income tax from your paycheck. You’ll still need to file an income tax return with Arkansas, but you won’t owe any income tax to Arkansas as long as you’ve had Oklahoma tax withheld.
Why is it Important?
The Oklahoma reciprocal tax agreement is important because it helps prevent double taxation for employees who live in one state and work in another. Without this agreement, these employees would be subject to income tax in both states, which could result in a significant financial burden.
It’s also important to note that the reciprocal tax agreement only applies to income tax. Other types of taxes, such as sales tax, property tax, and payroll tax, are not affected by this agreement.
Conclusion
If you’re an Oklahoma resident who works in another state, the reciprocal tax agreement can save you a lot of money on income tax. Be sure to check if the state you work in has a reciprocal tax agreement with Oklahoma, and don’t forget to fill out the necessary forms to claim exemption. As always, it’s a good idea to consult with a tax professional if you have any questions or concerns.