This is based on reciprocal agreements between Illinois and these states. Employers are expected to withhold state income tax from an employee's wages if that employee is subject to state income tax unless noted below.Each state has different tax rules regarding payroll withholding for out-of-state employees. Here's what to know about managing out-of-state employees. Some states have reciprocal agreements, meaning you can work in a neighboring state without having to pay taxes there. They received income from any business transaction, property, or employment in the state. Reciprocal agreements are when workers who live and work in different states are only required to pay taxes to the state where they live. Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Give Form W-4 to your employer. Use Form I9 to verify the identity and employment authorization of individuals hired for employment in the United States.