Payroll tax in Minnesota: What employers need to know [2024]

Few things have as steep a learning curve for a business owner as taxes. Not only because they continue to change (sometimes, seemingly overnight), but also because of the co-existence of federal and state obligations. However, if you have employees in multiple states, then this is an art you’ll need to master.

Minnesota has a graduated tax system, where obligations vary based on employees’ earnings and company revenue. Some payroll taxes also differ based on the industry, employer experience, and type of worker. 

Regardless of your company’s size, if you have employees living and/or working in Minnesota, then it’s essential that you understand what your payroll tax obligations are.

The 5 Minnesota payroll taxes

The Minnesota Department of Revenue oversees the administration of payroll taxes at the state level. There are also a few federal obligations that you must settle. 

There are 5 types of payroll taxes in Minnesota. We will discuss each in detail, including who is responsible for payments and when they are due. 

Federal income tax

Minnesota employers are responsible for withholding federal income tax from their employees’ wages and settling it on their behalf. How much tax you need to withhold from each worker’s earnings depends on their filing status, declared on federal Form W-4. These forms should be collected from each new team member before their start date.

If the employee’s filing status changes, it’s their responsibility to provide you with an updated W-4 form. Otherwise, the previous document remains in effect.

If an employee doesn’t provide you with their W-4, then you should apply the tax rate for single taxpayers with zero tax deductions.

There are seven federal income tax brackets for the 2024 tax year: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

State withholding tax

Minnesota has a graduated tax system in place, i.e., the higher the income level, the higher the tax rate, with tax rates ranging from 5.35% to 9.85%. The amount of tax owed also depends on the taxpayer's filing status, i.e., whether they’re married, single, or head of the household.

All payments made to employees for performed work are subject to the state withholding tax. As an employer, you are required to withhold the tax from your employees’ wages. The amount that you deposit to the Minnesota Department of Revenue must match the amount listed on the Form W-4MN. 

In terms of new hire reporting, before a new employee starts working for you, you need to ask them to fill out the state forms. If an employee fails to share a completed form with you for tax withholding purposes, treat them as single with no withholding allowance. All forms must be kept on file, and you have to make them available to the Revenue Department when necessary. 

If your employee works in a different state but lives in Minnesota, you might have to withhold tax for both states, i.e., Minnesota and the state they work in. To check if you should withhold the tax for the state where your employee works you can contact the tax department of that state. 

If your employee is a non-resident but performs work in Minnesota and is subject to federal income tax, then you must also withhold the Minnesota income tax from their wages, unless they’re a resident of Michigan or North Dakota. In this case, you’ll be free from withholding the state income tax as Minnesota has reciprocity agreements with both states.

Backup withholding

On top of federal and state taxes for your employees, you might also need to withhold a backup tax for those who perform personal services. These include any commercial work that has been executed for your company by a third party (i.e., non-employee). You will only need to withhold it, however, if the person who served your business refuses to provide their tax identification or social security number. In such a scenario, the Minnesota Department of Revenue requires you to withhold 9.85% of their wages instead of state tax. If you fail to withhold it, the state might hold your company accountable for the tax, along with interest or fines.

Minnesota State Unemployment Insurance (SUI) tax

When an employee loses a job, and it’s not their fault, they have the right to benefit from the state’s Unemployment Insurance (SUI) program. It acts as a temporary financial aid to those who are out of work. Employers with covered employment are required to make quarterly contributions to the Minnesota Unemployment Insurance Trust Fund (the Fund). The fund is used exclusively for unemployment benefits payments and is paid in full by the employer.

The unemployment insurance tax rate varies depending on the type of business and the employer’s level of experience. Organizations that pay wages for at least two years are seen as experienced employers. To understand the factors behind your company’s tax rates, refer to the state’s Unemployment Insurance Tax resource page.

Employers need to register with Minnesota’s Unemployment Insurance Program as soon as possible after they’ve paid wages to a covered employee. Registration must be completed before the first quarterly wage detail report is due for the employer. 

Tax rates range from 0.1%-8.9%, depending on the employer’s industry.

Federal Insurance Contributions Act (FICA) tax

As stated in the Federal Insurance Contributions Act (FICA), taxes paid by employers and employees finance the Social Security and Medicare benefit programs. The former supports retirement, disability, and survivorship benefits, while the latter covers medical insurance. 

Even though both the employer and the employee contribute to FICA taxes, it’s the employer who is responsible for withholding tax from the worker’s wages and remitting it to the Revenue Department. 

The current social security tax rate is 12.4%, split equally between the employer and the employee so that each party pays 6.2%. The Medicare tax rate is 2.9%, equally divided between the employer and the employee, i.e., 1.45% each. 

If an individual’s income exceeds $200,000 annually, the employer is obligated to withhold an additional 0.9% Medicare tax from the worker’s wages. They must start withholding the extra tax in the pay period when the employee’s wages exceed $200,000, and continue as long as their income remains over $200,000 annually. There is no additional Medicare tax equivalent for employers.

As you can see, there is a lot to take in when it comes to payroll tax types in Minnesota. Luckily, Rippling’s payroll compliance software can make it easy to navigate all of the above obligations.

Rippling automates your tax calculations and files your tax returns and payments on your behalf. It also monitors any state- and federal-level tax law changes to make sure you’re compliant. But not only that; Rippling’s PEO can also register and manage your tax accounts in Minnesota for you, further simplifying payroll taxes for your business.

Payroll tax due dates in Minnesota

Let’s now take a look at the payroll tax due dates for each tax type. 

Unemployment tax

The state unemployment tax must be paid every quarter to the Minnesota Unemployment Insurance Trust Fund. Here are the due dates for each quarter:

• 1st quarter (January 1-March 31): April 30
• 2nd quarter (April 1-June 30): July 31
• 3rd quarter (July 1-September 30): October 31
• 4th quarter (October 1-December 31): January 31

Withholding tax

The due dates for withholding tax depend on the amount of tax withheld.

• If you withheld over $1,500 the previous quarter, you must deposit semiweekly, and the payment is due on Wednesday after payday (if your payday falls on Wednesday, Thursday, or Friday). If you pay your employees on the weekend, Monday, or Tuesday, then you should pay the deposit on Friday after payday. 
• If you withheld more than $1,500 for the previous quarter, you must deposit monthly, and you need to settle the payment by the 15th of the next month.
• If you withheld less than $1,500 before December 1, you must deposit yearly by January 31.
• If you withheld no more than $1,500 in the previous quarter and you weren’t late with filing that quarter’s return, then you pay quarterly, and your deposit is due on April 30, July 31, October 31, and January 31. 

Federal taxes

Minnesota employers must settle federal taxes each quarter. The only exceptions to the rule are small employers (i.e., those whose tax liabilities are under $1,000 per year) and agricultural employers, who may pay once a year, provided that the Internal Revenue Service (IRS) approves their request to pay annually.

The Minnesota Department of Revenue and the IRS can both impose penalties and financial fines if taxes aren’t withheld and filed on time. Both of these taxation authorities can issue a fine to employers who don’t submit a properly filled out Form W-2 (Wage and Tax Statement). 

If an employer fails to withhold tax for their staff members, they may be held personally accountable for the entire amount owed in taxes. This is known as the Trust Fund Recovery penalty.

On top of penalties, employers might also need to pay interest for each day of delay. 

How to submit payroll taxes in Minnesota

We’ve discussed all of the types of payroll taxes in the state along with their due dates. What paperwork do Minnesota employers need to complete to settle taxes, and how can they file them? 

For starters, any business that pays employees in the state needs to:

• Register with the state’s Unemployment Insurance (UI) Program and acquire an Unemployment Insurance Employer Account Number
• Register with the Minnesota Department of Revenue and apply for a Tax Identification Number

These IDs will enable them to settle state-level taxes online, in person, or via a bank transfer.

Bank account

You can wire the funds to the Department of Revenue through a bank transfer. You can only make a payment through a US bank account.

If you choose this method to settle your payroll tax obligations, then bear in mind that most transfers take anywhere between three to seven days to process. The ‘payment date’ on your confirmation is the date by which your payment is officially recognized as received.

ACH Credit

You can also choose ​​an Automated Clearing House (ACH) credit to settle your payroll tax obligations. To pay via ACH credit, you need to ask your bank to ‘push’ money from your company account to that of the Department of Revenue. Bear in mind that some banks charge for this payment method.

Check or Money Order

Another payroll tax filing method is using the Payment Voucher System, which lets you pay through a money order or check. You fill out your taxpayer and payment information and create a voucher for the Department of Revenue.

Credit or Debit Card

You can also pay taxes with a credit or debit card, through a third-party vendor, US Bank. A fee will apply, equal to a percentage of your transaction: 1.25% for debit cards and 2.15% for credit cards. To use this payment option you’ll need: a Social Security number, Minnesota Tax ID Number, or Letter ID, address, email, and payment information. 

Cash

Cash payments are also accepted, but they have to be made in person at the Minnesota Department of Revenue, located at 600 N. Robert St., St. Paul, MN 55101.

Bank Wire

Alternatively, you can authorize your bank to transfer the tax you owe to the Minnesota Department of Revenue. If you need assistance, you can call 651-556-3003 or 1-800-657-3909.

Rippling’s full-service payroll software

If you prefer to steer clear of paperwork hassles, then you should consider using Rippling payroll software. It will automate the entire tax return process for you, giving you peace of mind that all your taxes will be paid correctly and on time.

Bear in mind that the methods above apply to state payroll taxes. To learn how you can settle your federal obligations, refer to the Bureau of the Fiscal Service website.

FAQs about Minnesota payroll taxes

Are there local tax laws in Minnesota?

There are no local tax laws in Minnesota. 

Can your tax returns be audited in Minnesota?

Tax returns can be audited in every state, including Minnesota. Small businesses can also be subject to an audit.

While conducting an audit, the Minnesota Department of Revenue checks the withholding tax returns to verify if the right amount of tax has been collected.

Tax returns can be audited as far as 3.5 years back. This time limit can be extended in some situations. If you fail to file a return, there is no time limit for audits. 

Are nonprofit organizations subject to payroll taxes in Minnesota?

Nonprofit organizations can apply for income tax relief in Minnesota. To decide whether an organization is eligible for a tax exemption, state authorities refer to the IRS. If the IRS assigned your organization with a 501c3 status, then you will be free of state income tax obligations.

On that note, there are a few formal requirements charitable organizations need to fulfill. Firstly, they must submit a yearly return to the IRS, just like all other organizations. The paperwork needs to be completed by the 15th day of the fifth month after the nonprofit’s fiscal year ends. If the organization surpasses $200,000 in gross receipts or $500,000 in total assets, then it will need to fill out Form 990. Those that reach $750,000 or more in revenue per year are legally obligated to have an audit run by an independent accounting authority. 

When filing their annual report with the Minnesota State Attorney General, the nonprofit needs to submit a copy of the documents filed with the IRS, i.e., Form 990 and any others (including the results of the financial audit).

What is the best way to stay on top of the latest payroll tax law changes in Minnesota?

The Minnesota Department of Revenue regularly publishes information on changes and legal updates on its website. It also runs a newsletter and hosts webinars and conference calls for tax professionals. To learn more, refer to this resource on the Department of Revenue’s site.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only and is not intended to provide or be relied on for, tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.