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Last Updated: 12/17/2018

Withholding for Residents of Another State Working in Minnesota

If you are required to withhold federal income tax from a nonresident employee’s wages for work performed in Minnesota, you must also withhold Minnesota income tax in most cases.

Note: If your employee is a resident of Michigan or North Dakota, you may not be required to withhold Minnesota income tax from their wages. For more information, see Minnesota employees covered by reciprocity on our Voluntary Withholding page.

What wages are subject to Minnesota withholding?

Wages are subject to Minnesota withholding if your employee earned them while a Minnesota resident, but received them while a nonresident. Wages include all income for services performed in Minnesota, such as severance pay, equity-based awards, and other non-statutory deferred compensation.

What payments are not subject to Minnesota withholding?

You do not need to withhold Minnesota income tax for either of the following:

  • Payments made on the sale of stock purchased through statutory stock options.
  • Payments from qualified deferred compensation plans, including regular defined benefit pensions, 401(k) accounts, IRAs, and 457 plans.

These payments are either not considered wages or prohibited from state taxation when paid to nonresidents.

For more information, see Fact Sheet 19, Nonresident Wage Income Assigned to Minnesota.