Work in Indiana, Live in Kentucky: Tax Reciprocity

State reciprocity

How does Indiana-Kentucky state reciprocity work?

Indiana and Kentucky have a reciprocity agreement covering wages, salaries and other employee compensation. As a Kentucky resident, you file Indiana Form WH-47 (Certificate of Residence) with your Indiana employer. This certifies your Kentucky residency and exempts you from Indiana's state adjusted gross income tax on your wages. Your employer then withholds Kentucky state income tax instead of Indiana state tax.

At year-end, you file only your Kentucky resident return (Form 740). No Indiana state return is needed for wage income. Kentucky has reciprocity with seven states — Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin — making it one of the most broadly connected reciprocal states.

What is Indiana's county income tax and does it apply to KY commuters?

Indiana has a unique local tax structure: each of its 92 counties levies a county income tax (also called county option income tax or COIT). This tax is imposed on residents of each county — it is a residency-based tax, not a work-location tax.

Because you live in Kentucky, you are not a resident of any Indiana county. Therefore, you generally do not owe Indiana county income tax. This is not because of the reciprocity agreement — it is because Indiana's county tax applies only to county residents. The result is the same, but the legal basis matters: even without reciprocity, nonresidents do not pay Indiana county tax.

This is a key difference from the Ohio-Kentucky crossing, where Ohio's municipal income tax applies to both residents and nonresidents who work in the city. Indiana's county tax is cleaner for out-of-state commuters because it follows residency, not workplace.

What about Kentucky's occupational license tax for KY commuters?

Many Kentucky cities and counties levy an occupational license tax on the earned income of their residents. If your Kentucky home city or county imposes this tax, you owe it on all earned income — including wages from your Indiana job. State reciprocity does not affect this obligation because it is a Kentucky local tax, not a state tax.

Rates vary by locality. Major Northern Kentucky and Louisville-area cities that levy occupational taxes include Covington, Newport, Florence, Lexington and Louisville/Jefferson County. Check your city or county clerk's office for the specific rate and filing requirements.

How do I set up reciprocity withholding with my Indiana employer?

1. Obtain Indiana Form WH-47 from the Indiana Department of Revenue website or your employer.
2. Complete the form, certifying that you are a Kentucky resident. Include your Kentucky address and Social Security number.
3. Submit to your employer's payroll department. They switch withholding from Indiana to Kentucky.
4. Provide a Kentucky Form K-4 so your employer can calculate the correct KY withholding amount.
5. Verify your pay stub shows KY state withholding and zero IN state withholding.

What if my employer already withheld Indiana tax?

If your employer withheld Indiana state income tax before you filed WH-47, follow these steps to recover the withholding:

1. File WH-47 immediately to stop further Indiana withholding.
2. Ask payroll about a mid-year correction. Some employers can reverse the IN withholding.
3. At year-end, file Indiana Form IT-40PNR (Part-Year or Nonresident Individual Income Tax Return), reporting zero Indiana-taxable wages under reciprocity. Claim a full refund of the IN withholding.
4. File KY Form 740 and pay any Kentucky tax that was under-withheld during the period your employer was sending money to Indiana.

What if I moved between Indiana and Kentucky mid-year?

If you changed residency during the tax year — for example, moving from Indiana to Kentucky — you are a part-year resident of both states. For the months you lived in Indiana, you file an Indiana return as a part-year resident and owe Indiana state and county tax on income earned during that period. After establishing Kentucky residency, you file WH-47 and the reciprocity agreement kicks in. You then file KY Form 740 as a part-year resident for the Kentucky portion of the year. Each state prorates your income based on the dates of residency.

How does remote work affect IN-KY reciprocity?

If you live in Kentucky and work remotely from home for an Indiana employer, reciprocity still covers your wages. You owe Kentucky state income tax only, regardless of whether you commute to Indiana or work from your Kentucky home. File WH-47 just as you would for on-site work. The agreement exempts all your employee compensation from Indiana state tax.

For the broader Cincinnati-NKY corridor with Ohio's different local tax structure, see our OH-KY guide. For a complete list of all reciprocal states, visit the reciprocity agreements hub.