MN/WI ending reciprocity agreement

[mblatour]

Hi all,

Recently MN and WI ended their reciprocity agreement which will affect 2010 tax returns. I live in Duluth, MN which borders Superior, WI. I have several clients that are residents of one state and work in the other. I've received a few phone calls from clients wanting to know what they should be filling out on their new state tax withholding forms for this year and if they should be making estimated tax payments if they will end up owing some to one state or the other. I've done a couple hours of reading today on the situation and I am still a bit confused. I think I am just too tired and busy to sink anything into my brain at the moment. I've got a pile of things printed out next to me that I need to sift through to better understand the situation. All of my clients earn enough to meet the filing requirements of the states they don't live in, but work in.

Can anyone give me some direction as to what to tell them? Any help would be greatly appreciated. I am just hoping for someone who deals with this sort of thing often and can just spell it out for me.

Thanks much.

Becky

[David1980]

If they handle it like most states, have the taxes withheld for the state they work.

So they'll pay taxes to the state they work on all income earned in that state. They'll pay taxes to the state they live on all income period. They'll take a credit for the state they live in for the taxes they pay to the other state.

If they live in MN and work in WI, they'll file a normal non-resident WI income tax return. All of their WI earnings are taxed to WI. On the MN return, they report all their income, and then complete a Schedule M1CR "Credit for taxes paid to another state".

So you're doing it normal now like the rest of us.

[Mike Mac]

It will be more work for us

I've always found doing WI taxes to be a pain and was unhappy that our legislative folks couldn't extend the reciprocity agreement. I did write my representative who told me that they will try to put the agreement back in place. In the mean time though we are stuck with doing a couple sets of returns as David mentioned. Our clients won't be happy with increased charges but it is out of our hands. I am glad that I'm in central MN rather than a border city like you mblatour.

[mblatour]

advice

Thanks Mike and David for your responses. Do you think there is anything I should recommend to my clients to do now that the reciprocity agreement between MN and WI has ended? Should they change their withholdings to account for any additional tax owed? Or should I just tell them to claim the same withholding statuses they've always claimed and wait to see where things pan out for the first year?

Makes things tough when so many client's incomes are up and down due to the economy anyway, then you add this to the mix.

Thanks!
Becky

[Mike Mac]

Withholding

MN and WI tax rates are fairly close (MN is probably about 1% higher) so if they continue to withhold around the same dollar amount for the like amount of income in 2010 they should be close to however they ended up in 2009. The MN legislature starts meeting again next month so hopefully the reciprocity agreement will be put back in place. That probably won't ease the burden for the 2010 season though. I would imagine that employers of the folks who are MN residents but work in WI are now withholding WI state taxes instead of MN state taxes since 1/1/2010 so we will be doing two sets of state taxes anyhow.

[Snaggletooth]

You Never Know..

...which state was responsible for dropping the agreement. Or maybe you do if you are in tune with your legislature. Politicians have a way of pointing fingers when something unpopular occurs. Of course, if they hadn't agreed to reciprocity to begin with, then it never would have existed.

I'm thinking Wisconsin would have been the big winner for reciprocity. Their population centers, primarily Madison and Milwaukee do not border other states. However, neighboring states do have population centers that border Wisconsin. Becky's town of Duluth is larger than Superior, Rockford is much larger than Beloit, there is the lakefront chain of Racine/Kenosha and others definitely smaller than the Illinois side, and suburban St. Paul dwarfs Hudson or anything else on the Wisconsin side.

All things being equal, I suppose I would blame MN (if anyone). They have much less to gain with reciprocity than Wisconsin.

[JON]

The story

is there is some formula where Wisconson Department of Revenue would pay MN. MN thought Wisc payments were running to far behind schedule, so for the past couple of years MN said if the payments did not speed up they were going to terminate the agreement. Now in these days of how far behind are we on the budget - they are hoping to get the money quicker, from the employers.

Since employers we hope are already withholding the new state requirements I think there is no way they change it back for 2010, if ever.

[AuditorTurnedGood]

It's a boom for us

since most people are not going to be wanting to do their 2 state returns on their own. I live 2 exits from the MN/WI border (on the MN, side) and watch the streams of traffic coming in from WI in the morning, and the traffic jam back out in the afternoon. In this case, the burden is going to fall quite heavily on the WI residents, since most people who cross the border to work do so to work in MN.

ATG