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Last Updated: 10/26/2017

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Withholding Tax

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Withholding Tax > Tax Information > Reciprocity

  • When did income tax reciprocity end with Wisconsin?Back to top

    Individual income tax reciprocity between Minnesota and Wisconsin ended effective January 1, 2010.  As a result, Minnesota and Wisconsin residents who work across the border must file returns in both states for 2010 and beyond if they meet minimum filings requirements.​

  • If my employee lives in North Dakota or Michigan and wants North Dakota or Michigan taxes withheld instead of Minnesota, what form would they need to fill out? Back to top

    The employee must to fill out Form MWR, Reciprocity Exemption/Affidavit of Residency by February 28 or within thirty days after work commences.  The employee will need to submit a new MWR for each year in which they want to claim exemption from Minnesota withholding taxes.  ​

  • I employ a resident from another state to work in Minnesota. How do I withhold state taxes?Back to top

    You must register for a Minnesota Withholding Tax ID number.  You can do this online through e-Services.  Click on “Register for a Minnesota tax ID number” on the File and Pay tab. ​

  • I employ a Minnesota resident that works in another state and I have Minnesota nexus. How do I withhold taxes for Minnesota and the other state? Back to top

    To determine the correct amount to withhold for Minnesota, first determine the amount of Minnesota withholding on the employee's total wages for the period. Use federal Form W-4 (Employee's Withholding Allowance Certificate) and the Minnesota withholding tax tables to determine this amount. Refer to the current Minnesota Income Tax Withholding Instruction Booklet for Minnesota withholding tax requirements. Next, determine the amount of the other state’s withholding required for the wages earned just for work performed in the other state.  Finally, using the worksheet found in the Minnesota Income Tax Withholding Instruction Booklet, subtract the amount of the other state’s withholding from the amount of Minnesota withholding and remit the balance, if any, to Minnesota.​

  • What is nexus?Back to top

    The term nexus is used in tax law to describe a situation in which a business has a presence in a state and is subject to the state's jurisdiction to tax. In general, a business has nexus if it derives income from sources within the state, owns or leases property in the state, employs personnel in the state in activities that exceed "mere solicitation," or has capital or property in the state.​

  • I employ a Minnesota resident that works in multiple states. Do I withhold only Minnesota tax or taxes from both states?Back to top

    To determine the correct amount to withhold for Minnesota, first determine the amount of Minnesota withholding on the employee's total wages for the period. Use federal Form W-4 (Employee's Withholding Allowance Certificate) and the Minnesota withholding tax tables to determine this amount. Refer to the current Minnesota Income Tax Withholding Instruction Booklet for Minnesota withholding tax requirements. Next, determine the amount of taxes from the other state(s) withholding required for the wages earned just for work performed in those states. Finally, using the worksheet found in the Minnesota Income Tax Withholding Instruction Booklet, subtract the amount of other state withholding from the amount of Minnesota withholding and remit the balance, if any, to Minnesota.

    To determine the amount of wages paid for work performed in the other state(s) during a payroll period, simply divide the hours worked in the other state by the total hours worked everywhere, and multiply the result by the total wages of the employee for the payroll period. Use only the time actually worked in the computation.

    For example, assume an employee worked 80 hours during the pay period and is being paid a total of $1,200. The employee worked 40 hours in Minnesota and 20 hours in Wisconsin, but is being paid for an additional 20 hours of paid vacation, sick and/or holiday time. The amount of wages subject to Wisconsin withholding for the pay period is $400 (20/60 X $1,200).

  • I cannot withhold two states income tax as directed because my current payroll software does not allow me to separate employee time worked in two states. What can I do?Back to top

    While we understand not all payroll software supports the requirements of the law, employers must make a good faith effort to track time and determine the proper assignment of wages between the states for income tax withholding purposes. Payroll period reporting should be precise, if possible. If not, employers may use another wage withholding allocation method (quarterly averaging, for example) that represents a good faith estimate and produces a substantially correct result for the entire year (or period of employment if less than the full year). Allocation of wage income reported on Form W-2 issued to employees and filed with the Department of Revenue must show an accurate distribution of wages between the states in which the employee has worked.

    Employees must record and retain information to support correct reporting of Minnesota wages on their individual income tax returns. Inaccurate information provided by the employer on Form W-2 does not excuse employees from this requirement