What actually happens
An employee who lives in Wisconsin and performs work in Minnesota sits in two tax systems at once. The residence state claims the right to tax all of a resident's income wherever earned; the work state claims the right to tax income sourced within its borders. Absent an agreement, both claims stand, and the conflict is resolved after the fact through a credit on the resident return rather than up front in payroll.
When Minnesota withholding starts
Minnesota applies a de minimis test $15,300 of in-state wages before nonresident withholding begins. Minnesota withholding is keyed to the annually indexed minimum filing requirement for Minnesota-source income; Tax Foundation reports $15,300 of Minnesota-source income for 2026. This figure comes from Tax Foundation, not a Minnesota DOR page -- verify the current-year amount with the Minnesota Withholding Tax Instruction Booklet before relying on it.
The trap is that thresholds are usually retroactive to the first day once crossed. An employee who spends 40 days in a 30-day-threshold state does not owe tax on 10 days; they owe it on all 40, and the employer is the one who failed to withhold.
Unemployment insurance goes to one state only
Income tax can be split between states. Unemployment insurance cannot. Under the localization test used by every state, an employee whose services are performed entirely in Minnesota is covered by Minnesota for unemployment purposes, and all wages are reported there — regardless of where they live, where you are headquartered, or which state's income tax you withhold. Minnesota's 2026 taxable wage base is $44,000. The four-factor test in order.
What you have to register for
| Obligation | State | Agency |
|---|---|---|
| Income tax withholding | Minnesota | Minnesota Department of Revenue |
| Unemployment insurance | Minnesota | Minnesota Department of Employment and Economic Development (DEED) |
| Paid family & medical leave | Minnesota | NEW FOR 2026: Minnesota Paid Leave premiums AND benefits both began January 1, 2026. The 2026 premium is 0.88% of wages up to $185,000; employers must pay at least 50% and may deduct up to 0.44% from employees. Employers with 30 or fewer employees and low average wages qualify for a reduced 0.66% total rate. First premium payment is due April 30, 2026. |
Frequently asked
Do Minnesota and Wisconsin have a reciprocal tax agreement?
No. There is no reciprocal agreement between Minnesota and Wisconsin. Minnesota taxes wages earned in the state by nonresidents, and Wisconsin taxes the same wages as resident income while allowing a credit for tax paid to Minnesota.
Which state's income tax should be withheld?
Minnesota, as the state where the work is performed. Wisconsin also taxes the income as a resident, but the employee claims a credit on the Wisconsin return for tax paid to Minnesota.
Which state gets the unemployment insurance wages?
Minnesota. Unemployment coverage is never split between states for a single job. The localization test assigns the whole job to the state where services are performed, which here is Minnesota, regardless of residence or where the employer is headquartered.
How many days can an employee work in Minnesota before withholding starts?
Minnesota applies a de minimis test of $15,300 in wages. Once the limit is crossed, most states require withholding on all in-state wages for the year, not just the excess.