Minnesota Payroll Taxes and Withholding Guide (2026)

What Makes Minnesota Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, employer unemployment taxes, any local wage taxes, and any state social-insurance premiums. Minnesota's second layer has two headline features. The income tax is steeply graduated, topping out at 9.85% (among the highest state rates in the country), and starting January 1, 2026 Minnesota adds a brand-new employee Paid Leave premium.

The income tax itself is withheld with an allowance-based computer formula: the employer subtracts a flat $5,300 (2026) for each Form W-4MN allowance, then applies a single or married rate chart. There is no local wage tax anywhere in Minnesota. The one thing that genuinely changes the Minnesota stub in 2026 is Paid Leave, so this guide treats it as its own layer. The federal baseline behind all of this is explained in the how payroll taxes work guide.

Employee Withholding Overview in Minnesota

A Minnesota employee sees federal taxes and a graduated state income tax, and from 2026 a new Paid Leave premium. There is no employee unemployment line and no local wage line.

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to Minnesota is a graduated state income tax reduced by a flat per-allowance amount, plus, beginning in 2026, the new Paid Leave premium. There is no local wage tax and no employee unemployment contribution.

How Is Minnesota State Income Tax Withheld?

Minnesota uses the computer formula in the Department of Revenue's annual Income Tax Withholding Instruction Booklet. The employer annualizes wages, multiplies the number of Form W-4MN allowances by $5,300 (2026) and subtracts that, then applies the graduated rate chart for the employee's single or married status and divides across pay periods. The 2026 single-status chart below applies to the annual wage after allowances.

Married employees use a wider chart on the same annual wage after allowances (5.35% over $14,700, then 6.80%, 7.85%, and 9.85% at higher thresholds). The 2025 allowance is $5,200 and the 2025 charts use slightly lower breakpoints; the Minnesota paycheck calculator is labeled 2025 and reproduces the 2025 formula to the cent. Your final Minnesota income tax is settled on Form M1. The federal Form W-4 sets federal withholding, covered in the W-4 withholding explained guide, while Form W-4MN sets the Minnesota status and allowances.

The $5,300 Allowance Method

This is the layer that defines Minnesota withholding. Rather than a percentage-of-wages deduction, Minnesota subtracts a flat dollar amount for each allowance the employee claims on Form W-4MN, then taxes what remains.

A single employee earning $65,000 with one allowance is taxed on $59,800 ($65,000 minus $5,200) for 2025, which lands in the 6.80% band. Claiming a second allowance would remove another $5,200 and cut annual withholding by about $354. Because the allowance is a flat dollar amount rather than a percentage, its value in dollars is the same at every income, but its effect on the effective rate shrinks as wages rise. The Minnesota paycheck calculator shows the allowance amount used at your income.

Minnesota Withholding (Form W-4MN)

Form W-4MN, the Minnesota Withholding Allowance/Exemption Certificate, is Minnesota's version of the federal W-4. Since 2020 the federal Form W-4 no longer computes Minnesota allowances, so every employee who completes a federal W-4 should also complete a W-4MN.

Status and Allowances

The W-4MN status (single or married) selects which rate chart applies. Each allowance removes $5,300 of annual wages for 2026 ($5,200 for 2025) before the chart is applied. Employees count allowances using the W-4MN worksheet.

The most common W-4MN mistake is not filing one at all. An employee who completed only a federal W-4 at hire is defaulted to single with zero Minnesota allowances and is over-withheld all year. A quick W-4MN with the right status and allowance count fixes it. Two-earner married couples should note the married chart is wide; the W-4MN also lets a married employee elect to withhold at the single rate to avoid under-withholding. To see how status and allowances change take-home pay, use the Minnesota paycheck calculator.

Minnesota Paid Leave (New in 2026)

Minnesota's Paid Leave program is the single biggest change to the 2026 Minnesota paycheck. Premiums begin January 1, 2026, and for the first time most Minnesota employees will see a state social-insurance line alongside the income tax.

The total premium is split between employer and employee: the employer must pay at least half of the 0.88% and may deduct up to half from the employee, so the maximum employee deduction is 0.44% of wages up to the $185,000 wage base. Premiums are remitted quarterly, with the first payment due April 30, 2026. Because the 2025 program year collects nothing, the Minnesota paycheck calculator (labeled 2025) does not include a Paid Leave line; employees should expect that small new deduction beginning with their first 2026 paycheck.

Minnesota Income Tax Reciprocity

Minnesota has reciprocal income tax agreements with two neighboring states: Michigan and North Dakota. Reciprocity means a resident of one of those states who works in Minnesota pays income tax only to their home state, not to Minnesota.

To claim it, the employee files Form MWR, the Minnesota Reciprocity Exemption/Affidavit of Residency, with the Minnesota employer, and the employer stops withholding Minnesota income tax. The MWR must be filed each year, generally by February 28. A Minnesota resident working in Michigan or North Dakota does the reverse and pays only Minnesota tax. Reciprocity covers personal service income (wages, salaries, commissions), not business or self-employment income. Note that Minnesota's older reciprocity agreement with Wisconsin ended in 2010, so a Wisconsin resident working in Minnesota is taxed by Minnesota and takes a credit at home; there is no MWR shortcut for Wisconsin commuters.

Employer Payroll Obligations in Minnesota

Minnesota employers carry the federal employer taxes plus State Unemployment Insurance through the Department of Employment and Economic Development (DEED), and from 2026 the employer share of Paid Leave. The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA).

The Minnesota unemployment taxable wage base is $44,000 per employee for 2026, so the employer unemployment tax stops once an employee's year-to-date wages pass $44,000. New employers pay a rate equal to the average for their industry before moving to an experience-rated rate; these are employer costs and are never deducted from employee pay. Employers must also remit the employer half of Paid Leave. Model the combined cost-to-hire with the employer payroll tax calculator.

Minnesota Has No Employee Unemployment Deduction

A handful of states, including Pennsylvania and New Jersey, take a small unemployment contribution directly from employee wages. Minnesota is not one of them. The entire cost of Minnesota unemployment insurance falls on employers through DEED, so there is no employee unemployment line on a Minnesota pay stub.

This matters most for workers who move to Minnesota from a state that does deduct employee unemployment and expect to see the same line. In Minnesota that line does not exist. What is new for 2026 is the Paid Leave premium, which is a separate program from unemployment: it is a paid-family-and-medical-leave contribution, and unlike unemployment it does include an employee share. So the mandatory deductions on a 2026 Minnesota stub are federal taxes, the graduated state income tax, and the Paid Leave premium, with no local or employee-unemployment lines.

Minnesota Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. Minnesota withholds these at a flat rate.

• Flat supplemental rate: Minnesota withholds 6.25% on supplemental payments regardless of the number of allowances the employee claims.
• Aggregate method: if the supplemental payment is combined with regular wages and not listed separately, the employer runs the combined amount through the regular withholding tables.
• Local wage tax: none, on supplemental wages or regular wages.
• Employee unemployment: none, on supplemental wages or regular wages.

Federal income tax withholding on supplemental wages is a separate calculation set by the IRS, and Social Security and Medicare still apply under their own rules. For the federal supplemental math, use the Bonus Tax Calculator.

Minnesota Filing and Payment Frequency

Minnesota employers deposit withheld state income tax on a schedule (semiweekly, monthly, or annual) based on the amount withheld, and file returns through the Department of Revenue's e-Services system. Employers also submit federal Forms W-2 and 1099 to Minnesota electronically. The Department of Revenue's withholding instruction booklet sets out the deposit schedule and the withholding tables. The federal deposit schedule is covered separately in the payroll tax deadlines guide.

Unemployment tax is reported and paid separately from income tax withholding, quarterly through DEED. From 2026, Paid Leave premiums are also reported and paid quarterly, with the first payment due April 30, 2026. New employees must be reported to the Minnesota new-hire reporting center within 20 days of the hire date.

How Take-Home Pay Works in Minnesota

The calculation sequence runs from gross pay down to net pay. Because Minnesota income tax begins with federal wages, the same pre-tax deductions that reduce federal wages also reduce the Minnesota state base.

1. Start with gross wages for the pay period.
2. Subtract federal pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for federal and Minnesota state tax.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Annualize wages, subtract $5,300 per W-4MN allowance (2026), apply the graduated single or married chart, and divide across pay periods.
5. Subtract Social Security (6.2%) and Medicare (1.45%) on FICA wages, and from 2026 the Paid Leave employee premium. The remainder is net pay; there is no employee unemployment line and no local wage line.

To see exact figures for a specific salary, W-4MN status, and pay frequency, use the Minnesota paycheck calculator or the general take-home pay calculator for a full pre-tax benefits stack.

Minnesota Payroll Quick Facts (2026)

Frequently Asked Questions