Minnesota Reciprocity Agreements: What You Need to Know

Minnesota is one of the few states in the country that has a reciprocal agreement with other states. These agreements are designed to simplify the payment of income taxes for those who work in one state but live in another. If you`re one of the many people who commute between Minnesota and another state for work, it`s important to understand the details of these agreements.

What is a Reciprocity Agreement?

A reciprocity agreement is a tax agreement between two or more states. The agreement allows residents of one state to work in another state without having to pay income taxes in both states. Instead, they only need to pay taxes in their state of residence. This is beneficial to workers who may otherwise need to file multiple state tax returns and pay taxes in multiple states.

Which States Have Reciprocal Agreements with Minnesota?

Currently, Minnesota has reciprocal agreements with the following states:

– North Dakota

– South Dakota

– Wisconsin

These agreements apply to both wages and salaries earned by residents of one state while working in another. However, the agreements do not apply to self-employment income or income from rental properties.

How Do Reciprocity Agreements Affect Your Taxes?

If you`re a resident of Minnesota and work in one of the three states listed above, you only need to pay Minnesota state income taxes on the income you earn. You don`t need to file a tax return in the state where you work. Likewise, if you`re a resident of North Dakota, South Dakota, or Wisconsin and work in Minnesota, you only need to pay taxes in your home state.

If you work in a state that doesn`t have a reciprocity agreement with Minnesota, you`ll need to file a tax return in both states and pay taxes in both states. This can be more complicated and time-consuming than filing a single tax return.

What About Local Taxes?

Reciprocity agreements only apply to state income taxes. They do not apply to local income taxes. This means that if you work in a city or county that has a local income tax, you may still need to file a tax return and pay local taxes.

In Conclusion

Reciprocity agreements are designed to simplify the payment of income taxes for those who work in one state but live in another. If you`re a resident of Minnesota who works in North Dakota, South Dakota, or Wisconsin, these agreements can save you time and hassle when it comes to filing your taxes. However, it`s important to remember that they only apply to state income taxes, not local taxes. If you have any questions about how reciprocity agreements affect your taxes, be sure to consult with a qualified tax professional.