Severance pay may be taxable to Minnesota and subject to state withholding.
If, when you pay severance, an employee is:
- Minnesota resident: You must allocate the full payment to Minnesota
- Nonresident of Minnesota: You must allocate the payment based on the employee’s percentage of time worked in Minnesota
Example 1: Steve worked nine years in Arizona and one year in Minnesota. He is a Minnesota resident when receiving his severance payment. You must allocate the full payment to Minnesota.
Example 2: Emma worked nine years in Minnesota and one year in Florida. She is a Florida resident when receiving her severance payment. You must allocate 90% of her severance pay to Minnesota.