HR Alert

Minnesota: Fact Sheet Explains State Income Tax Withholding

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The Minnesota Department of Revenue has released a fact sheet that explains Minnesota income tax withholding responsibilities as they relate to classification of wages, employees, and exceptions. Highlights from the fact sheet are presented below.

  • Taxable Wages. Minnesota follows the federal provisions for determining taxable wages. Wages subject to federal and Minnesota income tax withholding include all pay given to an employee for services performed. The pay may be in cash or in other forms, and it does not matter how the employer measures or makes the payments. The more common types of taxable wages include:
    Wages paid in money (cash, check, or electronically deposited into a bank account)
  • Wages not paid in money (goods, lodging, food, clothing, or services)
  • Tips
  • Supplemental wages (vacation pay, overtime pay, severance pay, back pay, bonuses, commissions, accumulated sick leave, awards, prizes, nondeductible moving expenses, etc.)
  • Payments made for idle time
  • Employer paid sick pay
  • Certain fringe benefits
  • Nonaccountable employee business expense reimbursements. Payments are considered nonaccountable if:
    The employee is not required to or does not substantiate expenses; or
  • The employer advances an amount and the employee is not required to or does not return any amount not used for business expenses.
    Withholding Income Tax from Wages. Most employers are responsible for withholding federal and Minnesota income tax from employees' wages for any work done in Minnesota. Minnesota follows the federal withholding tax provisions. If a business employs anyone who works in Minnesota or is a Minnesota resident, and the business is required to withhold federal income taxes, in most cases, the business is also required to withhold Minnesota income tax. Likewise, if the business is not required to withhold federal income tax from the employee's wages, in most cases, the business is not required to withhold Minnesota income tax. Click here for information on exceptions to the federal rules on wage withholding.

The fact sheet includes additional information, such as withholding from pensions and annuities, and guidance on registering for withholding tax. Click here to download the fact sheet.

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