Part-year and nonresidents pay tax on income from Minnesota sources and on income they receive from outside Minnesota while they are a resident of the state. They are required to file a Minnesota return if they meet the minimum filing requirement ($10,000 for 2013).
For more information on filing requirements, see:
Who Must File a Minnesota Individual Income Tax Return
Filing Requirements and Calculating Minnesota Gross Income
You’re considered a part-year resident of Minnesota if either of the following are true:
Moved into or out of Minnesota
If you permanently moved out of Minnesota during the tax year, you must file Form M1 and Schedule M1NR if your income meets the minimum filing requirement. Note that you must establish permanent residence elsewhere. Temporary absences do not change residency for tax purposes. For details, see Residency (Income Tax Fact Sheet 1).
Example: Julie moved to Minnesota for a new job in November 2014. She was paid $10,600 during the last two months of 2014. While Julie was here only two months of the tax year, she earned more than the minimum filing requirement of $10,150 and must file a Minnesota return using Form M1 and Schedule M1NR. She’ll pay tax to Minnesota based on the percentage of her total income that was earned here.
You’re considered a nonresident of Minnesota if both of the following are true:
If your income meets the minimum filing requirement ($10,150 for 2014), you must file a Minnesota return using Form M1, Individual Income Tax, and Schedule M1NR, Nonresident/Part-Year Residents.
For more information, see:
How Nonresident Income Is Taxed by Minnesota
Nonresidents (Income Tax Fact Sheet 3)
If you’re a resident of Michigan or North Dakota who works in Minnesota, you may not have to file a Minnesota return. For more information, see Reciprocity
If you’re a nonresident, Minnesota only taxes the wage or salary income that you earn while physically in the state. If you’re working in another state for a business located in Minnesota, that income isn’t taxable in Minnesota. For more information, see Minnesota Rules 8001.0300, subpart 4
Nonresidency and assignment of capital losses
If you have a capital loss while a Minnesota resident and then move to another state, you may assign the entire loss to Minnesota, subject to the $3,000 loss limitation on your federal tax return.
Example 1: Jane sold stock as a Minnesota resident and had a capital loss of $10,000. After moving to California, Jane sold stock and had a capital gain of $8,000. On her federal return, Jane is allowed a capital loss deduction of $2,000. On her Minnesota return, Jane will report a $2,000 capital loss in column A of Schedule M1NR and assign the entire $10,000 loss to Minnesota in column B.
Example 2: Jack sold stock as a Minnesota resident and had a capital loss of $15,000. After moving to California, Jack sold stock and had a capital gain of $10,000. On his federal return, even though Jack had a net capital loss of $5,000, he is limited to claiming only $3,000. The remaining $2,000 of loss can be carried over to future years until it is used up.
Because of the capital loss limitation, Jack can only assign $13,000 of the loss to Minnesota on Schedule M1NR. This represents the combination of the amount needed to offset the gain, $10,000, plus the excess loss allowed on the federal return, $3,000. He reports the $3,000 capital loss in column A of Schedule M1NR and assigns $13,000 of loss to Minnesota in column B.
When Jack reports the $2,000 of loss carryover on his next year’s federal return, the loss may be assigned to Minnesota if he has Minnesota sources of income. However, if Jack has no Minnesota income, the loss may flow through to his current state return, depending on that state’s laws. There is no separate loss carryover for Minnesota purposes to offset future Minnesota sources of income.
Special rules for certain nonresident employees
If you’re not a Minnesota resident and you’re employed in the transportation, airline or shipping industries, special rules may apply to work-related income you earn in Minnesota, as outlined below.
Interstate transportation employees
Compensation paid by interstate rail or motor carrier companies to employees who regularly work in more than one state can only be taxed by their state of residence under federal law, 49 USC 14503 (a) for motor carriers and 11502 for rail carriers . If these employees are nonresidents, they don’t have to file or pay Minnesota tax on the job-related income earned in the state.
Compensation paid to employees of water carriers and merchant mariners who regularly perform their duties in more than one state can only be taxed by their state of residence and a state in which 50% of the employee’s duties are performed in the year, under federal law, 49 USC 14503 (b) (2). If these employees aren’t Minnesota residents, they must file and pay Minnesota income tax only if more than 50 percent of their time is earned in the state.
Compensation paid by an air carrier to employees who regularly work in more than one state can be taxed only by their state of residence and the state where they earn more than 50 percent of their job-related income under federal law, 49 USC 40116(f)(2). If these employees are nonresidents, they must file and pay Minnesota income tax only if more than 50 percent of their flight time is earned in Minnesota.
The federal laws apply to employees. However, the law doesn’t cover self-employed transportation workers – such as independent truckers hauling goods – who can still be taxed under the three-factor formula. (For details of this formula, see Corporation Franchise Tax instructions