Recently, the Governor’s Office announced Minnesota would be ending its income tax reciprocity agreement with the State of Wisconsin. And while that may be perceived as good news for the state, it will be highly unwelcome for the folks in our border communities that hold jobs in the Badger state.
The reciprocity agreement allows cross-border workers to file and pay income taxes only in their home state. Minnesotans with earned income in Wisconsin pay income tax on their Wisconsin earnings as if they were earned in Minnesota. Their Wisconsin employer in effect withholds Minnesota income taxes from their paycheck, and they file only a Minnesota income tax return.
Wisconsin residents working in Minnesota far outnumber Minnesotans working in Wisconsin. A higher proportion work full time, and they typically work at higher paying jobs. So reciprocity results in a net loss of revenue to Minnesota, while Wisconsin gains.
While Wisconsin reimburses Minnesota for that loss, there has been an ongoing dispute as to how much that should be. In addition, there has been a significant time delay in this reimbursement, a time delay that Governor Pawlenty has tried to address to help in Minnesota's budget situation, but to no avail.
It’s my understanding that the move was made so Minnesota could collect income taxes from the 33,000 Wisconsin residents who work in our state. It’s expected to generate about $131 million in additional revenue for Minnesota over the next two years, as the state will not have to wait for the late and incomplete reimbursement from Wisconsin.
The problem is the 8,000 Minnesota residents who work in Wisconsin - some of which live in Goodhue, Winona and Wabasha counties - will potentially face a Wisconsin tax increase. The average increase in the combined Minnesota and Wisconsin tax for these affected workers is estimated to be $340. But as with all average figures, the actual impact on each individual Minnesotan working in Wisconsin can vary considerably.
This is a very unfortunate outcome and will be yet another hardship for hard working families living in southeastern Minnesota. The additional tax liability comes at a time when families are struggling and their economic future is uncertain.
Impacted residents won’t have to worry about the changes this year, so lawmakers have plenty of time to resolve the issue when they return to St. Paul in February. In the meantime, I will do whatever I can to work with the Governor and legislative leaders to explore restoration of the reciprocity agreement with Wisconsin, so that we can lift this additional layer of oppressive tax burden from those Minnesota families who are affected. I would also urge Minnesotans who work in Wisconsin to tell their employers there to let the Wisconsin governor know what they think of this added financial and/or paperwork burden, which will also affect thousands of Wisconsin residents.