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Minnesota State Payroll Taxes Explained

Minnesota small businesses have a lot of different taxes to keep track of. Below we’ll dig into payroll taxes in Minnesota so that you can feel confident and get it right for your business.

What Is Minnesota Payroll Tax Used For?

Minnesota payroll tax, also known as Minnesota income tax withholding, is used to pay employees’ annual state income tax.

As an employer, you withhold Minnesota state income tax from your employees’ wages according to their Form W-4MN and remit them to the state on their behalf. The employee gets credit for the state withholding, totaled annually on their Form W-2, which they use to file their individual income tax return.

If they don’t give you a completed Form W-4MN, Minnesota states, “withhold Minnesota tax as if they are single with zero withholding allowances.”

Who Does Minnesota Payroll Tax Apply To?

Minnesota payroll tax applies to all small businesses with employees, including S-Corp owners treated as employees. It does not apply to 1099 subcontractors. It also does not apply to sole proprietors who file their business return on Sch. C, as they don’t take wages as an employee, or partners that take guaranteed payments.

How Does A Business Get Started With Filing?

Minnesota small businesses must have a Federal tax ID number (FEIN), Minnesota tax ID number, and a Minnesota Unemployment Insurance ID number.

To get started filing and remitting payroll taxes, apply for a Minnesota tax ID number with the Minnesota Department of Revenue, and register for a withholding tax account. Then, provide your employees with Form W-4MN to complete. Lastly, report all new hires to the Minnesota Department of Human Services within 20 days of hiring.

How Complicated Are Minnesota Payroll Taxes?

Minnesota withholding taxes are relatively straightforward, following the W-4MN and state tax tables and rates for any given year, but payroll and employer responsibilities are complicated. For one, the Federal W-4 and State W-4Mn are different, so don’t just get one and use it for both. Minnesota also has income tax reciprocity with Michigan and North Dakota. There are a plethora of different pre-tax and after-tax deductions to consider, as well as laws around garnishments and backup withholding. Employers also have to deal with State Unemployment Tax (SUTA), handled by the Minnesota Department of Employment and Economic Development, and Worker Compensation Insurance, handled by the Minnesota Department of Labor and Industry.

What Happens If I Fail to Withhold, Deposit, or File Correctly?

Failing to withhold, deposit, or file correctly will result in interest and penalties to pay. For 2022 that interest rate is 3%.

Deposit withholding taxes semiweekly or monthly. Late payment penalties range from 5% – 15%. Failing to deposit payments electronically when required to do so will result in a 5% penalty. Late filing penalties add another 5%, and Minnesota may assess an additional 25% penalty for repeat offenders.

Minnesota assesses a tax penalty of 3% of wages for any employee misclassified as a 1099 contractor.

Minnesota assesses both employers and employees $500 penalties for knowingly filing incorrect W-4MN or failing to file when required, as well as a $50 penalty per W-2 you fail to provide or submit.

Working with Haworth & Company, Ltd.

Payroll has become too complex and complicated for most small business owners. At Haworth & Company, we have a designated EZ Payroll team that will help you get it right every time. Friendly staff, online options, and additional resources (such as HR On-Demand) allow you to keep the business you love running smoothly. Add in our monthly accounting, consulting and tax support to get everything you need under one roof. Contact us today to start making your life easier.


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