IL-KY reciprocity serves the far-southern Illinois / western Kentucky corridor (Metropolis IL - Paducah KY) plus remote workers employed across the state line.
| Scenario | Form To File | Result |
|---|---|---|
| Live IL, work KY | 42A809 (to skip KY) | No KY withholding. Pay IL tax only. |
| Live KY, work IL | IL-W-5-NR (to skip IL) | No IL withholding. Pay KY tax only. |
OBBBA 2026 (One Big Beautiful Bill Act) raised the federal SALT cap to $40,000. This matters for reciprocity commuters who itemize: your full home-state income tax is now more likely to be fully deductible on federal Schedule A, making the state-level tax difference between your home and work state a real after-tax driver of commute value. Check each state rate: IL top rate 4.95% flat, KY top rate 3.5% flat (2026).
File KY form 42A809 (Certificate of Nonresidence) with your Kentucky employer. KY state withholding stops; you withhold Illinois tax instead. Re-file if your home address changes.
File IL form IL-W-5-NR (Employee’s Statement of Nonresidence in Illinois) with your Illinois employer. Illinois withholding stops and you pay only Kentucky’s 3.5% flat tax (2026 rate).
No. KY cities and counties (Paducah, Louisville, Lexington, and many others) levy occupational license fees on wages earned within their boundaries. These local payroll taxes apply to nonresidents and are NOT covered by state reciprocity.
File KY form 740-NP-R (Kentucky Income Tax Return - Nonresident Reciprocal State) for that year to claim a full refund of the KY withholding. Then file your IL-1040 as normal and submit 42A809 to payroll going forward.
No. Reciprocity covers W-2 wages and salaries only. Self-employment income an IL resident earns from KY sources is KY-source income requiring a KY nonresident return (740-NP), with a credit claimed on the IL return.
See exact post-reciprocity paycheck with IL or KY withholding.
Paycheck Calculator →Run the numbers for each state: Illinois Income Tax Calculator · Kentucky Income Tax Calculator
Tax calculations are estimates for educational and informational purposes only. This site does not provide tax, legal, or financial advice. Tax laws change frequently. Always consult a qualified tax professional for advice specific to your situation. Data sourced from IRS publications and official state tax authority websites.
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