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The Minnesota Department of Revenue released the 2020 state income tax withholding guide that contains the 2020 wage-bracket tables and computer formula. The tables and formula must be used with wages paid on and after January 1, 2020.

Form W-4MN instructions for 2020

According to the Department, because the 2020 federal Form W-4 no longer allows individuals to claim personal allowances, it can no longer be used for determining Minnesota income tax withholding. Starting in 2020, employees who complete a federal Form W-4 must also complete a Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate, in order to determine their Minnesota income tax withholding.

If the employee does not complete the Form W-4MN as required, the employer must withhold Minnesota state income tax as though the employee claimed single filing status with zero allowances. (For prior years, employers could use the federal Form W-4 in lieu of

Form W-4MN if the employee did not provide the state form.)

Employers may continue to use the allowances claimed on the employee's federal Form W-4 if the employee used a 2019 or earlier version for Form W-4 and does not want to change their withholding for 2020. If an employee complete a 2020 Form W-4, they must also complete a Form W-4MN to determine their Minnesota withholding allowances.

Employees must also complete Form W-4MN if they:

• Claim fewer Minnesota withholding allowances than federal allowances on a 2019 or prior-year Form W-4
• Claim more than 10 Minnesota withholding allowances
• Request the deduction of additional Minnesota withholding each pay period
• Claim to be exempt from Minnesota income tax withholding. (Your employees must meet one of the requirements listed in section 2 of Form W-4MN.)

Employers are not required to verify the number of withholding allowances their employees claim and should honor each Form W-4 and Form W-4MN unless the Department provides different instructions.

Supplemental withholding rate remains the same

The supplemental rate of income tax withholding for 2020 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 state 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.

Revised 2019 withholding tables released earlier

The Minnesota Department released revised 2019 withholding tables and the computer formula that reflected legislation enacted in September 2019 (HF 5). Under the law, the second-tier income tax rate bracket was reduced from 7.05% to 6.8% and the income tax brackets for all tiers were adjusted.(EY Payroll Newsflash Vol. 20, #140, 9-12-2019.)

The withholding tables and computer formula were updated to reflect changes to the standard deduction, exemptions, and rates.

The bill contained federal income tax law conformity and nonconformity provisions. For example, Minnesota law now conforms to the federal definition of the standard deduction. Hence, for 2020, the standard deduction is $12,400 for individuals; $18,650 for heads of household and $24,800 for married filing joint and surviving spouses.(Department news release, 12-13-2019.)

Nonconformity provisions also apply, such as the addition of a new state dependent exemption for taxable years after December 31, 2018, equaling $4,300 per dependent for 2020.

See the Department's 2019 legislative summary for more information on the effect of the legislation on state income tax law.

2019 Forms W-2 and 1099 filing reminders

Calendar year 2019 Forms W-2 and Forms 1099 that reflect Minnesota income tax withholding are required to be filed with the Department by January 31, 2020. Employers filing 10 or more Forms W-2/1099 (combined) are required to file electronically.

Under 2017 HF1, the requirement to submit Forms W-2 electronically if submitting 10 or more forms was repealed and, instead, the commissioner is authorized 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.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.

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 state income tax withholding, see the Department's website.

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