The Minnesota Reciprocal Agreement: What You Need to Know

If you`re a resident of Minnesota who works in another state and your employer has signed a reciprocal agreement with Minnesota, you may be eligible to pay state income tax to Minnesota instead of the state where you work.

What is the Minnesota Reciprocal Agreement?

The Minnesota Reciprocal Agreement is an agreement between Minnesota and other states that allows residents of one state to pay income tax to their home state instead of the state where they work. Currently, Minnesota has reciprocal agreements with North Dakota, South Dakota, and Wisconsin.

How does it work?

If you live in Minnesota and work in one of the three states mentioned above, your employer will not withhold income tax from your paycheck for that state. Instead, you will only have Minnesota state taxes withheld from your paycheck. This means you will only need to file a state tax return in Minnesota, and not in the state where you work.

Likewise, if you live in one of the three states mentioned above and work in Minnesota, your employer will only withhold Minnesota state taxes from your paycheck, and you will not need to file a state tax return in Minnesota.

Who is eligible?

To be eligible for the Minnesota Reciprocal Agreement, you must be a resident of Minnesota and work in one of the three states with which Minnesota has an agreement (North Dakota, South Dakota, or Wisconsin). Your employer must also have signed the reciprocal agreement with Minnesota.

If you do not meet these criteria, you will need to file state income tax returns in both Minnesota and the state where you work.

Why is this important?

The Minnesota Reciprocal Agreement can save you time and money. Instead of filing state income tax returns in both Minnesota and the state where you work, you will only need to file in Minnesota. This can reduce your tax preparation costs and take less time to complete.

In addition, if you live in Minnesota but work in one of the three states mentioned above, you may be able to reduce your state income tax liability. This is because Minnesota`s state income tax rates are generally higher than those in North Dakota, South Dakota, and Wisconsin. By only paying Minnesota state taxes, you could potentially save money on your overall tax bill.

Conclusion

The Minnesota Reciprocal Agreement can be a helpful tax-saving tool for residents who work in one of the three states with which Minnesota has an agreement. If you are eligible, make sure to inform your employer and take advantage of this opportunity to simplify your tax filings and potentially save money on your tax bill.