The Minnesota Department of Revenue released the 2019 withholding tax guide, computer formula and wage-bracket withholding tables to its website.

As we reported previously, the Department announced last year that the 2018 state income tax withholding wage-bracket and percentage-method tables released in December 2017 remained unchanged for 2018 by the federal Tax Cuts and Jobs Act (TCJA). Employers were urged to suggest to employees who had made recent changes to their federal withholding to review their Minnesota withholding, using the federal 2017 Form W-4 as a guide to determine whether they are having enough Minnesota state income tax withheld for 2018. (EY Payroll NewsFlash Vol. 19, #167, 10-16-2018.)

Supplemental withholding rate for 2019

The supplemental rate of income tax withholding is unchanged at 6.25% (.0625).

Supplemental payments made to an employee separately from regular wages are subject to the 6.25% Minnesota withholding regardless of the number of withholding allowances the employee claimed. Multiply the supplemental payment by 6.25% (.0625) to calculate the Minnesota withholding.

If you make supplemental payments to an employee at the same time you pay regular wages and you list the two payments separately on the employee's payroll records (regardless of whether you list the amounts separately on the paycheck), choose one of the following methods to determine how much to withhold:

Method 1. Add the regular wages to the supplemental payment and use the tax tables to find how much to withhold from the total.

Method 2. Use the tax tables to determine how much to withhold from the regular wages alone. Multiply the supplemental payment by 6.25% (.0625) to determine how much to withhold from that payment.

If you do not list the regular wages and the supplemental payment separately on the employee's payroll records, you must use Method 1.

Form W-4MN is updated

The Department updated Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate, for 2019 to include steps for employees to calculate their Minnesota withholding allowances in Section 1 of the form. The Department recommends that employees use Form W-4MN to find their Minnesota withholding allowances separate from their federal allowances. However, if an employee does not complete Form W-4MN, employers can continue to use the allowances from a federal Form W-4 completed by the employee, unless the employee does one of the following:

• Claims fewer Minnesota withholding allowances than federal allowances
• Claims more than 10 Minnesota withholding allowances
• Requests additional Minnesota withholding be deducted each pay period
• Claims to be exempt from Minnesota income tax withholding (employee must meet one of the requirements listed in section 2 of Form W-4MN).

Backup withholding

Minnesota follows the federal provisions for backup withholding on nonwage payments for personal services. Personal services include work performed for the business by a person who is not an employee. If the person performing services does not provide a Social Security or tax ID number or if the number is incorrect, tax must be withheld at 9.85% of the payment(s). Failure to do so may result in an assessment of the amount that should have been withheld. The assessment is subject to penalty and interest.

2018 Forms W-2 and 1099 filing reminders

For the filing of Forms W-2 and 1099 with Minnesota withholding for calendar year 2018, employers filing 10 or more Forms W-2/1099 (combined) are required to file electronically by January 31, 2019. (Forms W-2c may also be filed electronically through e-Services.)

Under 2017 HF1, the deadline for employers to submit Forms W-2/1099 to the Department was accelerated to January 31. Also, the requirement to submit Forms W-2 electronically if submitting 10 or more forms was repealed and instead authorizes the commissioner to determine the content, format, and manner in which employers submit Forms W-2. The Department has not yet released any further information on whether the threshold for filing electronically will be changed from 10 or more. (EY Payroll NewsFlash Vol. 18, #119, 7-11-2017.)

Taxpayers no longer need an active withholding account to file Forms W-2/1099 provided they are registered in e-Services.

Effective with returns filed after December 31, 2017, the law eliminates the requirement that employers submit an annual withholding tax reconciliation because the Department is able to electronically identify discrepancies in withholding accounts without the need for a separate return.

Fact Sheet 2 for Form W-2 filing is available here. Fact Sheet 2a for Form 1099 with Minnesota withholding filing is available here.

Also, the Department requires that Forms 1099 be filed only if the form shows Minnesota withholding. The Department is not following the federal requirement that Forms 1099-MISC showing nonemployee compensation in box 7 be filed.

As we previously reported, the Department announced earlier this year that beginning January 1, 2019, employers will no longer have the option to use the Department's electronic data exchange (EDE) system to submit Forms W-2 and 1099. (EY Payroll NewsFlash Vol. 19, #132, 8-9-2018.)

As a result, the Department has made enhancements to its e-Services system, allowing employers to upload files, including compressed files, as large as 30 megabytes. Files must be compliant with the SSA EFW2 format for Forms W-2 and the IRS Publication 1220 for Forms 1099.

Employers needing to upload files larger than 30 megabytes must contact the Department by email at withholding.tax@state.mn.us, or by phone at +1 651 282 9999 or toll-free at +1 800 657 3594.?

For more information on Minnesota withholding tax, see the Department's website.

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EY Payroll News Flash