Rules for Payroll Withholding in Minnesota
Minnesota employers are required to withhold monies from their employees' paychecks to satisfy federal and state requirements, specifically, for state income tax, federal income tax, Social Security tax, Medicare tax and if applicable, wage garnishment. The employer follows the administering agency's guidelines when performing the withholding.
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State Tax Withholding
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All wages paid to Minnesota residents are subject to state income tax, regardless of where the employee works. Minnesota employers with employees who live and work in Minnesota withhold state income tax according to each employee's withholding allowance/exemption certificate, or W-4MN form, and the state withholding tax tables. Specifically, the employer is supposed to give new employees a W-4MN to complete. The employee puts her withholding conditions on the form, such as her filing status and allowances. Her employer uses the form and the withholding tax table that matches her pay period, filing status, allowances and wages to figure out state income tax. Minnesota employers pay state income tax withholding to the Minnesota Department of Revenue.
Reciprocity Agreement
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Minnesota has a tax reciprocity agreement with North Dakota and Michigan. This means that Minnesota employers do not withhold Minnesota income tax for employees who live in North Dakota and Michigan but work in Minnesota, if the employee completes a Reciprocity Exemption/Affidavit of Residency, or MWR, form. These employees are subject to North Dakota or Michigan income tax. Minnesota employers do not have to withhold North Dakota or Michigan income tax for these employees, but the Minnesota Department of Revenue encourages this practice, as a courtesy to the employee.
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Federal Withholding
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Minnesota employers are required to use an employee's W-4 form and the IRS Circular E's tax-withholding tables to figure out the employee's federal income tax withholding; this process is similar to Minnesota income tax withholding. At the time of publication, the employer withholds Social Security tax at 4.2 percent of gross income up to the annual wage base of $106,800, and Medicare tax at 1.45 percent of all gross compensation. The employer pays federal withholding to the IRS.
Wage Garnishment
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Minnesota is one of the many states that allow creditors to garnish debtors' wages. An employer can withhold no more than the lesser of the amount by which the debtor's disposable pay exceeds 40 times the federal minimum hourly wage, or 25 percent of his disposable earnings -- his income after legally required deductions, such as payroll taxes. For child support, the employer can withhold up to 50 or 60 percent, and if applicable, an extra 5 percent for support payments that are over 12 weeks late.
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References
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