If you pay anyone, including your spouse, children, other family members, friends, or students, to work for you at a fair or event, they are your employee. You must withhold Minnesota income tax from any compensation you provide them, including cash, goods, or services in exchange for working.
Examples of goods include novelty items, clothing, items from your inventory, or tuition deductions for educational institutions. Examples of services include accounting, cleaning, remodeling, or repair work.
Withhold tax from anyone who works in Minnesota. Do not withhold Minnesota tax from nonresidents who will earn less in Minnesota wages than the minimum income required to file a Minnesota Individual Income Tax return. The minimum filing requirement changes each year. For tax year 2023, this amount is $13,825.
Corporate Officers
Corporate officers who provide services for a corporation (whether an S corporation or C corporation) are considered employees of the corporation. As with any other employee, the officer should receive a reasonable wage for the services performed.
A reasonable wage is the amount you would expect to pay someone else to provide services similar to what the officer provides. You must withhold Minnesota income tax from any compensation given to officers, including cash, goods, or services in exchange for working.
Employees Who are Residents of Michigan or North Dakota
Minnesota has income tax reciprocity agreements with Michigan and North Dakota. Generally, under these agreements, only the home state will tax personal service income the resident earned while working in a reciprocity state.
If an employee who is a resident of a reciprocity state gives you a completed Form MWR, Reciprocity Exemption/Affidavit of Residency, you are not required to withhold Minnesota income tax from their wages. Submit the completed Form MWR to the Minnesota Department of Revenue.
