What did Virginia's 2006 reciprocal income-tax agreement with Maryland cover and exclude?

Plain-English summary

The updated agreement exempted cross-border compensation from the work state's income tax. Virginia residents working in Maryland were exempt from Maryland income tax on compensation, and Maryland residents earning compensation in Virginia received the matching Virginia exemption.

The 2006 agreement clarified two points from the superseded 1992 agreement. A person maintaining a place of abode in a state for an aggregate of at least 183 days was treated as a resident of that state. Reciprocity applied only to compensation.

Maryland residents with income from a Virginia business, rental property, or another non-compensation activity still had to file and pay Virginia tax on that income.

What this means for you

• Reciprocity covered compensation, not every type of cross-border income.
• The 183-day abode rule could change residency classification.
• Business and rental income remained taxable in the source state under the bulletin.
• Current agreement terms and withholding forms should be checked.

Citations and references

• Virginia-Maryland Reciprocal Income Tax Agreement signed December 7, 2006.
• Virginia Tax Bulletin 06-8 (Dec. 27, 2006).

Subject

Virginia and Maryland Update Reciprocal Income Tax Agreement

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 06-150

Original ruling text

TAX BULLETIN 06-8
Virginia Department of Taxation

December 27, 2006

Individual Income Tax

Virginia and Maryland UPDATE Reciprocal Income Tax Agreement

On December 7, 2006, Virginia and Maryland signed a reciprocal agreement concerning individual income tax. This agreement supersedes a similar agreement dated August 24, 1992, that was effective for taxable years beginning after December 31, 1991.

Under the reciprocal agreement, Virginia residents who work in Maryland are exempt from Maryland income tax on compensation earned in Maryland. Maryland residents earning compensation in Virginia are similarly exempted from Virginia income tax. The 2006 agreement makes two changes that clarify the 1992 reciprocal agreement.

(i) Those who maintain a place of abode in the state for an aggregate of 183 days or more are considered residents of that state.

(ii) The reciprocal agreement applies only to compensation. Maryland residents who have income from a business, rental property, or other activity in Virginia must file a Virginia income tax return and pay tax on that income.

These changes are consistent with the way that Virginia has been administering the 1992 agreement with Maryland since its inception.

If you have additional questions, please contact the Department of Taxation at (804) 367-8031 for individuals or (804) 367-8037 for employers with questions about withholding.