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Minnesota

Minnesota payroll taxes: Your 2026 guide to staying compliant

By QuickBooks
Published on March 6, 2026

Minnesota is known for its strong economy, high quality of life, and diverse business landscape. In 2024, the state’s real gross domestic product (GDP) reached approximately $500.8 billion, supported by key industries such as healthcare, manufacturing, agriculture, and finance. The Twin Cities metro area is a major economic hub, home to numerous Fortune 500 companies and a growing number of tech and clean energy startups. Minnesota also consistently ranks high in workforce education and infrastructure, making it an attractive place to start and grow a business.

However, with its economic opportunities comes a complex array of payroll tax requirements that employers must navigate carefully. Understanding Minnesota’s payroll taxes, the risks of non-compliance, and the steps needed to manage your obligations is essential for running a successful business in the state.

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What are payroll taxes?

Payroll taxes are taxes based on wages, salaries, or other compensation that both employers and employees must pay. While income taxes are also withheld through payroll, payroll taxes specifically fund programs like Social Security, Medicare, and unemployment insurance.

Understanding Minnesota state payroll taxes

When starting a business in Minnesota, you'll need to understand both federal and state payroll tax obligations.

Federal payroll taxes

Payroll taxes are mandatory and encompass both federal and state requirements. 

Federal payroll taxes include:

  • Federal income tax: This is withheld from each employee's paycheck based on their W-4 form and the current IRS tax brackets. You'll be responsible for calculating the correct amount, withholding it, and then sending it to the IRS.
  • Social Security and Medicare taxes: Both of these taxes have a portion paid by the employee and a matching portion paid by you, the employer. For Social Security, the combined rate is 12.4% on the first $176,100 of wages in 2025. For Medicare, it's 2.9% on all wages, with an extra 0.9% for higher earners. You'll withhold the employee's portion and match it.
  • Federal Unemployment Tax (FUTA): This is paid solely by you at a rate of 6% on the first $7,000 of each employee's wages. However, most employers get a 5.4% credit, reducing the rate to 0.6%. The graphic below lists some best practices for managing your FUTA obligations.
Futa best practices for small businesses

Minnesota state payroll taxes

In addition to federal payroll taxes, Minnesota employers must also manage several state-specific payroll tax obligations.

  • Unemployment Insurance tax (UI): Employers in Minnesota are required to pay into the state’s Unemployment Insurance program, which provides temporary wage replacement benefits to workers who lose their jobs through no fault of their own. The tax rate varies based on the employer’s experience rating, industry classification, and other factors. New employers typically start with a standard rate, which can change after a few years of reporting. The taxable wage base in Minnesota for 2025 is $43,000 per employee.
  • Workforce Development Enhancement Fee: In addition to the UI tax, employers also pay a Workforce Development Enhancement Fee. This is 0.10% to 0.50% of taxable wages and is always included as part of the UI tax payment. Funds collected through the WDA help support job training and placement programs throughout the state.
  • State income tax withholding: Minnesota requires employers to withhold state income tax from employees’ wages based on information provided in Form W-4MN. Withholding amounts must be calculated using Minnesota’s tax tables and submitted according to the employer’s assigned filing schedule. Employers must also file quarterly withholding tax returns with the Minnesota Department of Revenue.
  • Paid Family and Medical Leave (PFML): While not in place in 2025, beginning January 1, 2026, Minnesota will implement a Paid Family and Medical Leave (PFML) program funded by a payroll tax of 0.88% split between employers and employees. Although the program has not yet begun, businesses should start preparing for compliance with contribution requirements and employee benefit provisions.

Minnesota local payroll taxes

There are generally no local payroll taxes to withhold in Minnesota cities or counties. However, some areas may impose other local taxes that businesses should be aware of. To ensure you are in compliance with local obligations in Minnesota:

  1. Check with your local government to determine if any additional local taxes or fees apply to your business. Local authorities can provide the most accurate and current information on regional requirements that may affect your operations.
  2. Consult a tax professional if you need guidance on interpreting local tax obligations or managing compliance. An accountant specializing in Minnesota taxes can help identify any region-specific considerations and ensure your business stays fully compliant. 

Other important tax considerations

Multiple locations

If your business has employees working in multiple jurisdictions, you may be subject to different local payroll taxes for each location.

Changing rates

Local payroll tax rates can change over time, so it's important to stay informed about any updates that may affect your business.

Employer responsibilities for payroll taxes in Minnesota

As a Minnesota employer, you're responsible for managing a complex array of federal and state payroll taxes, which involves careful calculation, timely withholding, and accurate reporting to various government agencies. Here’s an overview of what you should know.

Registering for payroll taxes

To comply with Minnesota state regulations, employers must register for payroll tax obligations before paying wages to any employees. Proper registration enables your business to manage unemployment insurance contributions, state income tax withholding, and meet mandatory new hire reporting requirements. Here are the essential steps to get started:

  • Obtain an Employer Identification Number (EIN): Before registering for state payroll taxes, you must obtain a federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is used for federal tax filings and is required when setting up state tax accounts. You can apply for an EIN online through the IRS website at no cost.
  • Register with the Minnesota Department of Revenue (DOR): With your EIN in hand, register your business for Minnesota state income tax withholding through the Minnesota Department of Revenue’s e-Services portal. Once registered, you’ll receive a Minnesota Tax ID Number, which you’ll use for filing returns and submitting payroll withholdings.
  • Register with the Minnesota Unemployment Insurance Program: Employers must also register with the Minnesota Department of Employment and Economic Development (DEED) to establish an unemployment insurance account. Registration is completed online via the Minnesota UI Employer Self-Service System. After registering, you’ll be assigned an Employer Account Number and will be responsible for filing quarterly wage reports and paying UI taxes.
  • Report new hires: Minnesota law requires employers to report all newly hired or rehired employees within 20 days of their start date. This helps the state enforce child support orders and detect unemployment fraud. Reports must be submitted to the Minnesota New Hire Reporting Center, which offers online, mail, and fax submission options.

Calculating payroll taxes

Accurately calculating payroll taxes is essential to avoid costly errors and penalties. In Minnesota, you have several options to ensure accuracy:

  • Check government websites: The Minnesota Department of Revenue offers detailed withholding tax tables, instructions, and calculators to help employers determine the correct amount to withhold from employee wages. These resources are available on the department’s official website and are updated regularly to reflect current rates and rules.
  • Payroll software: Some small business software payroll programs have built-in Minnesota tax tables that automate calculations, saving you time and minimizing the chance for errors.
  • Professional services: If you prefer to outsource payroll, a professional payroll service can handle everything for you.

Whichever method you choose, make sure you stay updated on the current tax rates and wage limits, as these can change every year.

Withholding state payroll taxes

Once you’ve calculated the correct payroll tax amounts, you’ll need to withhold them from your employees’ wages and remit payments to the appropriate Minnesota agencies. Following the state’s guidelines for timely withholding and remittance is critical to avoid penalties and maintain compliance.

State Income Tax Withholding: Minnesota employers must withhold state income tax based on each employee’s completed Form W-4MN, Employee’s Minnesota Withholding Allowance/Exemption Certificate. Withholding amounts should be calculated using the Minnesota Department of Revenue’s tax tables or withholding formulas published in the Minnesota Withholding Tax Instruction Booklet.

  • Example: For a single employee earning $5,000 in monthly wages with one exemption, the estimated withholding amount would be approximately $228, depending on the most current tax tables and applicable deductions.

Unemployment Insurance (UI): Employers are responsible for paying Minnesota’s Unemployment Insurance tax on wages up to the annual taxable wage base, which is $43,000 per employee in 2025. Rates vary depending on your business’s experience rating. New employers typically begin with a base rate that may adjust over time.

  • Example: If your assigned UI rate is 3.0% and an employee earns $5,000 in a month, you would pay $150 in UI tax for that employee for that month (3.0% of $5,000).

Workforce Development Enhancement Fee: This fee is included as part of the unemployment tax and is charged at a rate of 0.10% to 0.50% on the same $43,000 wage base.

  • Example: If an employee earns $1,000 during a pay period with a 0.10% rate, the WDA contribution would be $1.00 (0.10% of $1,000).

Note: The WDA isn’t a separate tax; it’s included in your total UI rate assigned by the Minnesota Unemployment Insurance Program.

Paid Family and Medical Leave (PFML) – Starting 2026: Although contributions are not required until 2026, employers should begin preparing. The planned PFML program will be funded by a payroll tax, set at 0.88% of wages, split equally between the employer and employee. This rate may be adjusted before rollout.

  • Example: For an employee earning $1,000 in a pay period, the employer would contribute $4.40 and withhold $4.40 from the employee’s wages.

By applying these calculations to each paycheck, you ensure accurate withholdings and compliance with state requirements.

Remitting state payroll taxes

In Minnesota, if your business withholds taxes from employee paychecks, you’ll need to file withholding tax returns with the state.

Filing payroll tax returns in Minnesota

In Minnesota, employers must comply with both quarterly and annual payroll tax return requirements to fulfill state and federal obligations. Here's a breakdown of 2025 state-level requirements:

Quarterly requirements

Annual requirements

Penalties for late filing or non-compliance and tips for staying organized

Missing deadlines or failing to remit payroll taxes in Minnesota can result in significant financial consequences for your business. The state may impose penalties and interest charges for late or inaccurate filings, which can quickly add up and strain your cash flow. At the federal level, the IRS also enforces strict payroll tax compliance and may issue steep fines for late payments, underreporting, or noncompliance. Staying organized and proactive is key to avoiding these issues. The following tips can help you stay on track and maintain compliance:

Set reminders

Mark all important payroll tax deadlines on your calendar and set automatic reminders on your phone or computer. Use digital tools or payroll software to track due dates and avoid missing any key filing or payment deadlines.

Consider payroll software

Using payroll software tailored to Minnesota tax requirements can streamline the process. Many platforms automatically calculate withholding amounts, generate required forms, and notify you when payments are due, helping reduce the risk of errors and missed filings.

Outsource payroll

If payroll management is becoming too complex or time-consuming, outsourcing to a trusted payroll service provider may be the best solution. These professionals handle all aspects of payroll, including tax calculations, filings, and payments, helping you stay compliant with both state and federal regulations.

Seek professional help

If you have any questions or concerns about payroll taxes, don't hesitate to consult with a tax professional or accountant. They can provide expert guidance and help you tackle the complexities of payroll tax compliance.

Pre-tax vs post-tax payroll deductions

Payroll tax credits and incentives

Minnesota offers several tax credits and incentive programs designed to support job creation, innovation, and community development. These programs can reduce your overall tax liability while encouraging business practices that benefit the state’s workforce and economy. Here are some of the credits available to Minnesota employers:

Federal Research and Development (R&D) Payroll Tax Credit

Qualified small businesses and startups can apply up to $500,000 of the federal R&D tax credit annually toward their employer share of Social Security payroll taxes. This credit supports continued investment in innovation and helps reduce the financial burden during the early stages of growth.

Federal Unemployment Tax Act (FUTA) Credit

Employers who pay Minnesota Unemployment Insurance (UI) taxes in full and on time may qualify for the FUTA credit of up to 5.4%. This reduces the federal FUTA rate from 6.0% to just 0.6% on the first $7,000 of wages per employee, significantly lowering your federal tax obligation.

Work Opportunity Tax Credit (WOTC)

The WOTC is a federal program that allows employers to receive a tax credit of up to $9,600 per eligible new hire from certain targeted groups, such as veterans, long-term unemployed individuals, and SNAP recipients. Minnesota employers can apply through the state’s Department of Employment and Economic Development (DEED) to claim this benefit.

Minnesota Job Creation Fund 

The Minnesota Job Creation Fund provides financial incentives to businesses that create high-quality jobs and make significant capital investments in Minnesota. Approved businesses may receive cash grants based on job creation and investment benchmarks.

Greater Minnesota Job Expansion Program

Businesses operating in eligible areas outside the Twin Cities metro may qualify for tax benefits under the Greater Minnesota Job Expansion Program. It offers a sales tax exemption for up to seven years to businesses that meet specific job creation and wage requirements in Greater Minnesota.

Industries frequently benefiting from Minnesota business tax credits

  • Technology and research & development (R&D) firms. Minnesota offers a state-level Research and Development Tax Credit that mirrors the federal version and allows qualifying companies to claim a credit for increasing research expenditures. Eligible activities include developing new or improved products, processes, or software. This credit is especially valuable for startups and tech firms looking to offset high development costs.
  • Film and media production companies. Minnesota’s “Snowbate” program offers reimbursement for up to 20% of eligible in-state production costs for film and TV projects. Designed to attract filmmakers to Minnesota, this incentive helps reduce production expenses while boosting local job creation and economic activity.
  • Manufacturers. Manufacturing companies in Minnesota may benefit from the Job Creation Fund, R&D Tax Credit, and sales tax exemptions on machinery, materials, and equipment used in production. These incentives help manufacturing firms modernize operations and remain competitive in both domestic and international markets.

Consult with a tax professional to understand what tax credits and incentives you could potentially apply to your business. 

Common payroll tax mistakes in Minnesota (and how to avoid them)

Navigating Minnesota’s payroll tax landscape can be complex, especially for new employers. Below are some of the most common mistakes businesses make and how you can avoid them to ensure compliance.

Misclassifying workers

Improperly classifying employees as independent contractors can lead to serious consequences, including penalties and back taxes. Minnesota has specific criteria for determining worker status under its labor laws. When in doubt, review the Minnesota Department of Revenue and Department of Labor and Industry guidelines, or consult a tax professional for clarification.

Missing deadlines

Minnesota enforces strict payroll tax filing and payment deadlines. Missing due dates for withholding or unemployment filings can result in penalties and interest. Use payroll software or digital calendars to set automated reminders and stay on top of your filing schedule.

Incorrect withholding calculations

Minnesota withholding rules are different from federal requirements. Relying solely on IRS tax tables can result in under- or over-withholding. Always use Minnesota’s most recent withholding tax tables and W-4MN forms to ensure accurate calculations for your employees.

Overlooking local obligations

While Minnesota does not impose local payroll taxes like some states, businesses in certain cities may still face local fees or assessments that affect overall costs. Check with your local government or chamber of commerce to determine whether additional local requirements apply.

Failing to Update Employee Forms

Employee information changes frequently. Marriages, dependents, and residency status all affect withholding. Using outdated W-4 or W-4MN forms can lead to inaccurate tax withholdings. Review and update employee forms annually or whenever there’s a significant life change.

Miscalculating UI rates

Minnesota Unemployment Insurance (UI) tax rates can change each year based on your company’s experience rating. Failing to apply the correct rate can lead to underpayments or overpayments. Always refer to your annual rate notice from the Department of Employment and Economic Development (DEED) and update your payroll system accordingly.

Poor recordkeeping

Inadequate recordkeeping can make audits and reconciliations stressful and error-prone. Minnesota recommends that employers maintain payroll records for at least four years. Use secure, cloud-based payroll software to store records, track payments, and simplify compliance tasks.

Tip: QuickBooks Payroll can help you avoid these common mistakes by automating calculations, tracking deadlines, and keeping accurate records.

How to manage your small business payroll obligations 

Understanding the nuances of Minnesota's payroll taxes and regulations can take some time. Follow our small business tax preparation checklist and these steps to help you manage your payroll taxes.

Step 1. Partner with a tax professional

Consult a tax professional familiar with Minnesota’s payroll taxes and regulations. They can guide you through compliance requirements, local tax nuances, and potential tax benefits for your business.

Step 2. Explore payroll software

Consider using payroll software to streamline your payroll processes. Tools like QuickBooks automate tax calculations, minimize errors, and ensure compliance with Minnesota laws.

Step 3. Proactively plan for compliance

Stay informed about Minnesota’s payroll tax deadlines and updates. Payroll software combined with expert guidance can help ensure you meet state and local requirements.

Step 4. Optimize your tax strategy

Work with your tax professional to uncover deductions, credits, or other incentives that could benefit your business. Leverage software reports to better understand your payroll data and identify opportunities for savings.

Step 5. Build a financially strong foundation

By combining expert guidance with the right tools, you can efficiently manage payroll taxes and focus on growing your business in Minnesota.

What are the payroll taxes in Minnesota?

Minnesota’s payroll taxes include State Income Tax Withholding, Unemployment Insurance (UI), and the Workforce Development Enhancement Fee, each with distinct rates and payment obligations. Employers are responsible for withholding and remitting state income taxes, paying UI taxes, and contributing to workforce development programs.

Calculating payroll taxes in Minnesota

Payroll tax calculations in Minnesota depend on several factors, including:

  • Employee's wages and taxable income
  • Employer's Unemployment Insurance tax rate
  • Federal and state taxes

For employees, the main payroll taxes are: 

  • State income tax
  • Federal income tax
  • FICA (Social Security and Medicare taxes)
  • Paid Family and Medical Leave (PFML) — beginning January 1, 2026, employees may have a portion of the PFML premium withheld (up to 50%, capped at 0.44%)

For employers, the main payroll taxes are:

  • Minnesota Unemployment Insurance
  • Federal Unemployment Tax (FUTA)
  • Paid Family and Medical Leave (beginning in 2026)

To accurately calculate Minnesota payroll taxes, you can use resources such as the Minnesota Department of Revenue’s withholding tax tables and instructions, payroll software configured with Minnesota-specific data, or seek guidance from a qualified tax professional. Each of these options can ensure correct calculations and compliance with all regulations.

It’s essential to stay updated on the current rates and regulations, as they can change annually.

Leverage payroll software for compliance in Minnesota

Managing payroll in Minnesota requires accuracy due to complex regulations. Errors can lead to penalties and legal risks, but QuickBooks streamlines payroll management to ensure compliance. It automatically calculates, files, and pays federal and state payroll taxes—with a 100% accuracy guarantee.** You'll stay current with Minnesota tax law changes, easily generate reports for filings, and get up to $25,000 in penalty coverage if issues arise.**


Disclaimer: 

**Accuracy Guaranteed: Available with QuickBooks Online Payroll Core, Premium, and Elite. We assume responsibility for federal and state payroll filings and payments directly from your account(s) based on the data you supply. As long as the information you provide us is correct and on time, and you have sufficient funds in your account, we’ll file your tax forms and payments accurately and on time or we’ll pay the resulting payroll tax penalties. Guarantee terms and conditions are subject to change at any time without notice.

Tax penalty protection: If you receive a tax notice and send it to us within 15 days of the tax notice we will cover the payroll tax penalty, up to $25,000. Additional conditions and restrictions apply. Only QuickBooks Online Payroll Elite users are eligible to receive tax penalty protection.

This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.


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