Minnesota Payroll: Reciprocity Employee Withholding


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The state of Minnesota has recently released  Payroll Withholding Tax Fact Sheet 20 which covers  Reciprocity Employee Withholding for employers who employ Michigan or North Dakota residents to work in Minnesota or Minnesota residents to work in Michigan or North Dakota.

 If you are a Minnesota company and you are required to withhold federal income tax from an employee’s wages who is a resident of a reciprocity state, in most cases you are also required to withhold Minnesota income tax. However, if your employee does not want you to withhold Minnesota tax from his or her payroll check, they must give you a completed Form MWR, Reciprocity Exemption/Affidavit of Residency, by February 28 of each year, or within 30 days after he or she begins working or changes their permanent residence. To continue to be exempt from Minnesota withholding tax, the employee must submit a new Form MWR to you each year.  You have until March 31 of each year or within 30 days after the employee gives you a Form MWR to submit copies to the department. For details, see Form MWR instructions.

 If you are a company located in a reciprocity state, you are not required to withhold Minnesota tax from an employee who is a Minnesota resident. However, you may choose to do so as a courtesy to your employee. If you choose not to withhold Minnesota tax, your employee may be required to make regular estimated tax payments to us. Your employee is required to pay estimated tax if he or she expects to owe $500 or more on their Minnesota income tax return.

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