Yes, it is correct for the employer to withhold only Wisconsin (WI) income tax once you began working from your home which then creates the situation where you physically work in WI and not Minnesota (MN).
- 'During the national emergency, Company D allows Individual E to work from his or her home in Wisconsin. Company D has no other activities in Wisconsin during the national emergency.'
Generally, you are required to pay tax in the state where you physically work regardless of where the employer is located (occasional exceptions).
Because there is no reciprocal agreement between WI and MN then you will have two state returns to complete.
- MN for the time period where wages were earned when you physically worked in MN.
- Wi for the entire year reporting all worldwide income. There will be a credit for taxes paid to another state for the wages earned while physically working in MN. Use the other state taxes paid in the WI return for the credit.
Your resident state does not want you to pay tax on the same income twice and is willing to provide a credit. The credit that is allowed will be the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by your resident state
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