Income tax laws are complex and it is almost impossible for a single person to remember. InfoTaxSquare.com is equipped with professionals at every level to offer the best service in our industry. According to one of our associates, Mr. Naushad Hacque CPA followed the dual state income tax rule and saved a significant amount of money for the taxpayers. It is my belief that many tax preparers are not aware of this rule, and I will explain it below.

Earned income, such as wages and salaries, is typically covered by reciprocal agreements between states. Individuals who live in one state but work in another can only pay state income tax in their current state of residence through these agreements. Tax obligations are simplified and there is a prevention of double taxation on the same income. Reciprocal agreements between states typically exclude self-employed income. Earned income, such as wages and salaries earned from employment, is typically the focus of these agreements. If you're self-employed, you may still need to file tax returns in both your state of residence and the state where you earn income, depending on the tax laws of those states.

Let me explain it with a case study:

A taxpayer resides in New Jersey and works in the state of Pennsylvania. The NJ taxpayer has already paid taxes in NJ, so they don't have to pay taxes on wages in Pennsylvania. This regulation prevents double taxation. This rule does not apply to self-employed individuals.