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Summary of differences between federal and state regulations
Income tax withholding
If you employ anyone who works in Minnesota or is a Minnesota resident, and you are required to withhold federal income tax from the employee’s wages, in most cases you are also required to withhold Minnesota income tax. If you are not required to withhold federal income tax from the employee’s wages, in most cases you are not required to withhold Minnesota income tax. The rules for determining if you are required to withhold federal taxes are in Circular E, IRS Publication 15.
If you pay anyone — even your spouse, children, other family members, friends, students or agricultural help—to perform services for your business AND you control what will be done and how it will be done, you have an employee. Also, any officer performing services for a corporation is an employee and their wages are subject to employment tax requirements.
You must withhold Minnesota income tax from the wages you pay employees and then pay those amounts to the Department of Revenue. You must withhold tax even if you pay employees in cash or give them other goods or services in exchange for working for you. Goods and services are subject to Minnesota withholding tax to the same extent they are subject to federal withholding tax.
If you expect the employee to earn less than the minimum Minnesota assignable income required for filing a Minnesota individual income tax return, you do not have to withhold Minnesota tax. The minimum income is equal to the federal standard deduction for a single filer and one personal exemption.
Important exceptions to the federal rules are explained below.
Employees who are residents of Wisconsin, North Dakota or Michigan and work in Minnesota are not required to have Minnesota income tax withheld from their wages. Minnesota has tax reciprocity agreements with these states. Under the agreements, residents of Wisconsin, North Dakota and Michigan who work in Minnesota generally pay state tax to the state in which they live. The reverse is true for residents of Minnesota who work in Wisconsin, North Dakota or Michigan. They generally pay tax to Minnesota only.
You cannot withhold Minnesota income tax from pension and annuity payments unless you are asked to by the person receiving the payment. If you agree to withhold, follow the same rules as you do for withholding on wages. However, instead of a W-2 form, pension and annuity recipients are issued a 1099R form.
If you operate an interstate carrier company and have employees such as truck drivers, bus drivers or railroad workers who regularly perform assigned duties in two or more states, withhold state income tax for the employee’s state of residence only.
If you operate an interstate air carrier company and have employees who perform regularly assigned duties on aircraft in more than one state, withholding is required for the state of residence as well as any state in which more than 50 percent of their compensation is earned. An employee is considered to have earned more than 50 percent of his or her compensation in any state in which scheduled flight time in that state is more than 50 percent of total scheduled flight time for the calendar year.
The payer of mining and exploration royalties is required to withhold income tax on royalty payments made for use of Minnesota land. The withholding rate is 6.25 percent (.0625) of the royalties paid during the year.
Under Minnesota law, self-employed individuals (independent contractors) who are not residents of Minnesota but work for you in Minnesota are considered employees, and the person who controls their compensation is considered the employer. Therefore, you are required to withhold Minnesota income tax from nonresident, self-employed persons who work for you in Minnesota as if they were employees.
If you expect the employee to earn less than the minimum Minnesota assignable income required for filing a Minnesota individual income tax return, you do not have to withhold Minnesota tax. The minimum income is equal to the federal standard deduction for a single filer and one personal exemption.
Unemployment taxes
All states finance UC primarily through contributions from subject employers on the wages of their covered workers. In addition, three states (Alaska, New Jersey, and Pennsylvania) collect contributions from employees. These taxes are deposited by the state to its account in the UTF in the Federal Treasury, and are withdrawn as needed to pay benefits.
Many states have adopted a higher tax base than what is provided in FUTA. Hawaii's wage base is usually higher and changes periodically. In all states, an employer pays a tax on wages paid to each worker within a calendar year up to the amount specified in state law. In addition, most of the states provide an automatic adjustment of the wage base if federal law is amended to apply to a higher wage base than that specified under state law. As a result of the many variables in states taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state.
Wages subject to unemployment tax in this state equal $22,000.
Minimum and maximum rates in this state are 0.44 and 10.76 %. Rates apply to experience rated employers only and do not include applicable surtaxes or penalties.
State
Contacts
Income tax withholding
Department of Revenue
Unemployment taxes
Department of Employment and Economic Development
Regulations
Income tax withholding
Chapter 8092 Withholding
Unemployment taxes
Chapter 3310, Department Of Employment and Economic Development, Unemployment Appeals
Federal
ContactsInternal Revenue Service
Regulations Title 26 Code of Federal Regulations, Internal Revenue