Minnesota Non-Resident, Income Working in SD vs MN On-site, Box 1 vs Box 16

[sammy_two]

I'm a SD resident working for a MN based company at an office in MN. This company also has a subsidiary company which is based in SD. I work partially in MN office and partially in SD office at the subsidiary company which is reflected on my W2 as box 16 for MN is a lesser total than shown in the box 1 federal income, which also matches the percentage of the time that I work on-site in MN. On the state return "Your Minnesota Bottom Line" summary page, the summary lists my federal AGI instead of the lower income from box 16. As a MN non-resident which is earning less than 100% while in MN, should I expect to pay state tax on my box 1 income or my box 16 income? I'm using Turbotax Premium Online.

[KeshaH]

For all taxpayers, including nonresidents and part-year residents, Minnesota starts its tax calculation using federal adjusted gross income. The tax is calculated as if it was earned completely in Minnesota.

Then, for nonresidents and part-year residents, the tax liability is prorated using an income percentage. The income percentage is a ratio of your Minnesota income to your total income. For example, if you only earned 40% of your total income in Minnesota, your income percentage would be 40%.

For example, if your Minnesota tax liability based on your total income is $10,000 but you only earned 40% of your income in Minnesota - you would only have to actually pay $4,000 ($10,000 * 40%) to Minnesota.

So, while Minnesota does start out by calculating tax as if all of your income was earned in Minnesota, the tax liability itself is prorated so that you aren't actually paying tax on all of your income in Minnesota.

[sammy_two]

Thank you for the response.

Looking at this again, it appears the “Your Minnesota Bottom Line” webpage isn’t properly displaying the prorated tax liability as I'd expect for the taxable income line.

I had expected the line for "Minnesota Taxable Income" to show an amount similar to the amount from W2 box 16 less the deductions, but it shows a much larger amount (4.7x) as taxable vs. the amount in my W2 box 16.

The amount that is showing I owe for "Minnesota Income Tax" line calculates to 3.9% of my W2 box 16 though, so that seems much closer to the expectation.