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Kentucky
Employee Obligations (Which Returns YOU Must File)
Illinois has a reciprocity agreement with Kentucky. If your only income from Kentucky is wages, salary, tips, or commissions, file your Illinois return only — no Kentucky return needed. Give your Kentucky employer your reciprocity form (IL-W-5-NR) each year.
Employer Obligations (What Your Employer Must Withhold & Remit)
Reciprocity applies. If the employee provides the reciprocity form (IL-W-5-NR), withhold Illinois tax instead of Kentucky tax. Must still register for Kentucky unemployment insurance. Register for withholding and unemployment from day 1. Must also register with local tax authorities. Unemployment applies to the first $11,400 of wages.
City & Local Income Taxes (Extra Filings Beyond the State Return)
87 counties and approximately 170 cities levy occupational taxes on nonresidents ranging from 0.5% to 2.5%. City and county taxes can stack. Louisville Metro charges 1.45% for nonresidents. Lexington-Fayette charges 2.25%. Combined state plus local total can exceed 6%. The M1CR credit does NOT cover these local taxes.
Reciprocity Agreement — File Home State Only for Wages
Illinois has a reciprocity agreement with Kentucky. For wage income, you only need to file your Illinois return. Give your employer the reciprocity form (IL-W-5-NR) each year to avoid Kentucky withholding.
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This is general information, not tax or legal advice. Laws change frequently. Always consult a licensed CPA or tax attorney for your specific situation. All information researched as of March 21, 2026.