Remote work in Minnesota and staying in Wisconsin

[swarajsave]

I am a Wisconsin resident and recently started a job in Minnesota.

I was working from the office( in MN) during the first two weeks only after my start date and then started working remotely in WI.

Initially, the employer kept deducting MN taxes and not WI taxes for the first 4 months.

Recently, the employer started deducting WI taxes and not MN taxes. The reason was given to me that, as I was working in MN for two weeks only and then started working remotely, I do not qualify as a "WI resident working in MN" and so WI tax will be deduced moving forward if I continue to stay in WI.

I would like to know if this is appropriate.

This is something, I found on the DOR website for WI, but did not find any reference to the claims made by my MN employer.

https://www.revenue.wi.gov/Pages/FAQS/ise-mnrecipro.aspx 

Thank you in advance.

[JotikaT2]

It depends.

If you anticipate owing more than $500 in Wisconsin, then you would have to make estimated tax payments.  But based upon your research, you would qualify under the special withholding and would only need to have income taxes withheld in Minnesota.  You would be able to claim a credit on your resident Wisconsin tax return for the income taxed in Minnesota.

You should qualify as a Wisconsin resident working in Minnesota as you appear to meet the requirements.

Please see the link below for additional information on your filing requirement in Minnesota.

Minnesota filing requirement

[swarajsave]

Hey Jotika,

Thank you for the response. I appreciate your help.

Upon further digging, I found more information, and now I am a little confused with the highlighted sentence in the snip below. I might potentially be answering my own question here.

Is the WI gov. saying

- MN employer may withhold WI taxes during the national emergency situation even if they are not required to? 

OR

- MN employer should continue to withhold MN taxes per the special withholding arrangement?

I would really appreciate if you can help me interpret the paragraphs correctly.

This snip is taken from page 3 of this document: https://www.revenue.wi.gov/withholdingtaxupdate/20-1.pdf 

[swarajsave]

[JotikaT2]

Unfortunately, your highlighted text is not coming through in the picture.  Can you please clarify what your question is so we can assist you?

Are you essentially trying to determine if your employer has the right to withhold taxes in Wisconsin even though your source of income is from the Minnesota employer?

[swarajsave]

Sorry for the confusion. Here are the exact words as mentioned in the Withholding Tax update from WI state below:

"Example 2
Facts:
• Company D is located in Minnesota
• Individual E is a resident of Wisconsin and an employee of Company D
• Prior to the national emergency, Individual E commutes daily to work for Company D in Minnesota
• 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.

Wages paid to Individual E prior to the national emergency are subject to Wisconsin income tax because
he or she is a resident of Wisconsin. However, Company D is not required to withhold Wisconsin income
tax from these wages because of the special withholding arrangement between Wisconsin and Minnesota.
More information about this arrangement is located on the department's web site here:
https://www.revenue.wi.gov/Pages/TaxPro/2010/news-2010-100120.aspx.

Wages paid to Individual E during the national emergency are subject to Wisconsin income tax because
he or she is a resident of Wisconsin. However, because Company D is not considered to have nexus in
Wisconsin during the national emergency (COVID-19), it is not required to withhold Wisconsin income tax
from Individual E's wages. Company D may withhold Wisconsin income taxes from Individual E's wages."

[DianeW777 · Accepted solution]

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.

1. MN for the time period where wages were earned when you physically worked in MN.
2. 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:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

[swarajsave]

Thank you so much.

This was really helpful. I really appreciate your help and guidance in this case.

Best,

Swaraj

[TheMaskedOne]

I have a similar situation.  I physically work from home in Indiana, but employer is based in Illinois.   No Illinois taxes have been collected, only Indiana state and my County taxes have been withheld.   Must I file a IL and IN return or only IN?

[ErnieS0]

Just file an Indiana income tax return. You do not have to file an Illinois tax return if you do not work in Illinois.