Submit the exemption form 44-016 to your employer. If an employee who lives in one state and works in another starts working for you, you can automatically start inflating taxes for the employment state. If you are withholding taxes for the state of work and not for the state of residence, the employee must make quarterly tax payments to their home state. Reciprocity between States does not apply everywhere. An employee must live and work in a state where there is a tax reciprocity agreement. Which states have reciprocity with Iowa? Iowa actually has only one state with tax reciprocity: Illinois. If an employee works in Arizona but lives in one of the mutual states, they can file the WEC, employee withholding exemption certificate, form. .