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Individual income tax reciprocity with Wisconsin ended effective January 1, 2010

Individual income tax reciprocity between Minnesota and Wisconsin ended effective January 1, 2010. As a result, Minnesota and Wisconsin residents who work across the border must file returns in both states for 2010 and beyond if they meet minimum filing requirements.

This change does not impact 2009 income tax returns for individual taxpayers.

Information for individuals
Minnesota residents who work in Wisconsin
Wisconsin residents who work in Minnesota

Information for employers
Minnesota employers that employ Wisconsin residents
Wisconsin employers that employ Minnesota residents
Withholding FAQs: Income tax reciprocity with Wisconsin ends

Information for individuals operating a business that provides personal services
Individuals operating a business that provides personal services

If you have questions
If you have questions about Minnesota tax, contact the Minnesota Department of Revenue:

Individual Income Tax

Withholding Tax

If you have questions about Wisconsin tax, contact the Wisconsin Department of Revenue:

Individual Income Tax

Withholding Tax

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Minnesota residents working in Wisconsin

Beginning January 1, 2010, Wisconsin will tax your personal service income earned in Wisconsin such as wages, salaries, tips, commissions, fees, or bonuses. In most cases, Wisconsin employers will withhold Wisconsin tax from your pay.

For 2010 (without reciprocity agreement), you need to:
  • Make 2010 estimated tax payments to Minnesota if you expect to owe at least $500 in Minnesota income tax after claiming the credit for income taxes paid to Wisconsin. Income tax rates are generally similar in both states. However, you may end up owing Minnesota tax if you have other types of income that are subject to Minnesota tax such as dividends, interest or pension income. See Minnesota Estimated Tax for more information.
  • File a 2010 Wisconsin income tax return for nonresidents, Form 1NPR, if your Wisconsin income meets minimum filing requirements. All personal income earned in Wisconsin is taxable by Wisconsin.
  • File a 2010 Minnesota income tax return, Form M1. You will report all income received on your Minnesota return, including personal service income earned in Wisconsin. When filing Minnesota Form M1, you will receive a credit for taxes paid to Wisconsin on income that is taxable in both states.
    Wisconsin residents working in Minnesota

    Beginning January 1, 2010, Minnesota will tax your personal service income earned in Minnesota such as wages, salaries, tips, commissions, fees, or bonuses.

    In most cases, Minnesota employers will withhold Minnesota tax from your pay. You can no longer file Form MWR, Reciprocity Exemption/Affidavit of Residency, to be exempt from having Minnesota tax withheld from your personal service income earned in Minnesota.

    For 2010 (without reciprocity agreement), you need to:
    • Make 2010 estimated tax payments to Wisconsin if you expect to owe at least $200 in Wisconsin income tax after claiming the credit for income taxes paid to Minnesota. Income tax rates are generally similar in both states. However, you may end up owing Wisconsin tax if you have other types of income that are subject to Wisconsin tax such as dividends, interest or pension income. See Wisconsin Estimated Tax for more information.
    • File a 2010 Minnesota income tax return as a nonresident using Form M1 and Schedule M1NR. Even if you do not meet the minimum filing requirements, you may need to file Form M1 to request a Minnesota tax refund. All personal service income earned in Minnesota is taxable by Minnesota.
    • File a 2010 Wisconsin income tax return. You will report all income received on your Wisconsin return, including personal service income earned in Minnesota. You will receive a credit for net income taxes paid to Minnesota on income that is taxable in both states.
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      Minnesota employer that employs Wisconsin residents

      The Wisconsin Department of Revenue announced that Minnesota employers are not required to withhold Wisconsin income tax from wages of Wisconsin residents employed in Minnesota. See Wisconsin’s Special withholding arrangement.

      Wisconsin employer that employs Minnesota residents

      On January 1, 2010, you must begin withholding Wisconsin income taxes on personal service income of Minnesota residents working in Wisconsin. You should ask these employees to complete a Wisconsin Withholding Exemption Certificate, Form WT-4. Form WT-4 is used to determine the amount of Wisconsin income tax to be withheld from employee paychecks.

      Individuals operating a business that provides personal services

      The termination of the reciprocity agreement between Minnesota and Wisconsin affects both wage earners and individuals with personal service businesses to the extent that they live in Wisconsin and work in Minnesota or vice versa.

      Wage earners are not the only people affected by the termination of reciprocity. Owners of unincorporated personal service businesses that live in one state and conduct their business in the other may have previously qualified for reciprocity*. Beginning in 2010, these individuals will need to file an income tax return with the state in which their business activity is conducted if they meet the filing requirement in that state. Some business activities potentially affected include independent consultants, licensed professional, and self-employed contractors.

      Sole proprietors and single member limited liability companies (LLC) operated by nonresidents of Minnesota should compute the portion of business income that is taxable by Minnesota using the same “three-factor formula” that corporations use. See Schedule M4A of the Minnesota Corporation Franchise Tax return, Form M4. The Minnesota portion of the business income is then entered in column B of Schedule M1NR.

      Example: A licensed psychologist who lives in Wisconsin but sees patients at her office in Minnesota may have previously qualified for reciprocity, meaning that she would have filed a Wisconsin state income tax return but not a Minnesota state income tax return. Beginning with 2010, she will also be required to file a tax return with Minnesota, assuming that the gross income from her practice in Minnesota exceeds filing requirements. Wisconsin will allow her a credit for tax paid to Minnesota.

      Example: A self-employed painter who lives in Minnesota wins a contract to paint houses in a new development in Hudson, Wisconsin. During 2010, he receives $20,000 for the job in Hudson and another $30,000 from jobs he did in Minnesota. He will file a 2010 Wisconsin individual income tax return to pay tax to Wisconsin on the job in Hudson. He will also file a 2010 Minnesota individual income tax return, Form M1, but will be allowed take a credit for the tax paid to Wisconsin using Schedule M1CR.

      *Prior to 2010, an individual could qualify for reciprocity on his or her business income provided that the total of wages paid to employees plus gross receipts from the sale of goods was less than $20,000 or 10 percent of the total gross receipts of the business, whichever is greater.

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