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SimplerIRA

Minnesota State Withholding

 
Minnesota state withholding changes:
Effective May 24, 2023
 
This Q&A is designed to aid your financial organization in understanding the Minnesota state withholding rules on our products, generally Administration-driven/operational. Furthermore, this Q&A is specific to IRAs; specifically, nonperiodic taxable payments from IRAs. For additional questions on MN state withholding rules please contact the MN Department of Revenue.
 
NOTE: It is important for your organization to work with your own legal counsel to fully understand and comply with the Minnesota state withholding rules.
 

What has changed in the Minnesota withholding rules as of May 24, 2023?
On May 24, 2023, legislation was enacted to allow IRA owners to request Minnesota income tax withholding at any rate or amount. This simplified method no longer requires your financial organization to calculate allowances.
 
An IRA owner now has four options to elect Minnesota state withholding on IRA distributions.
  • Default rate of 6.25%
  • Any percentage
  • Any set dollar amount
  • No withholding
 
Did the Minnesota Department of Revenue release a new Form W-4MNP to comply with the new rules?
Yes. In August 2023, a new Form W-4MNP was released after a comment period that provides the new withholding options for IRA owners to request withholding at any rate or any amount, including to elect no withholding.
 
The most current version of the form can be found linked on the right side of this page inside the "Need More Information?" box.
 
We anticipate that Form W-4MNP will be updated annually.
 
Is there a grace period for your financial organization to comply with the new rules and using the new Form W-4MNP?
Yes. The Minnesota Department of Revenue will not assess penalties against payors who comply with the withholding requirements before the legislation was enacted from May 24, 2023, through December 31, 2023.
 
Furthermore, financial organizations are not required to use the revised Form W-4MNP before January 1, 2024.
 
When is the Form W-4MNP required?
Form W-4MNP is required if the IRA owner is a Minnesota resident and is receiving taxable payments or distributions. For taxable distributions, IRA owners must complete Form W-4MNP to set the withholding amount or percentage for the distribution or elect not to withhold on the distribution.
 
Form W-4MNP is not required for certain nontaxable distributions, including qualified Roth IRA distributions, or qualified charitable distributions (QCDs).
 
If the IRA owner previously completed a Form W-4MNP, does he need to complete a new form?
No. If the IRA owner previously completed Form W-4MNP at the same financial organization, he may use the election already made by confirming with the financial organization. The IRA owner may complete a new form and provide to your organization if he chooses to change his withholding election.
 
If the IRA owner has existing scheduled payments and does not have a completed Form W-4MNP on file does your financial organization need a completed form?
Yes. Your financial organization must request that the IRA owner complete Form W-4MNP to make her withholding election or elect no withholding.
 
What if the IRA owner does not furnish a completed Form W-4MNP with their election to your financial organization when taking an IRA distribution?
If an IRA owner does not furnish your financial organization with a completed and valid Form W-4MNP (e.g., form is not missing Social Security number or signature), your financial organization must withhold at the default rate, currently 6.25%.
 
Is the Ascensus state withholding form an acceptable substitute to Form W-4MNP?
No. An equivalent substitute form will be accepted by the Minnesota Department of Revenue, provided the form includes all the information available in the Form W-4MNP. Our form is not designed as a substitute Form W-4MNP.
 
MN Department of Revenue requires the IRA owner to make his election on Form W-4MNP and provide the completed Form W-4MNP to your financial organization. Your financial organization can then input the information into our software or onto our forms.
 
Your financial organization must retain a copy of Form W-4MNP in your files and may, in certain cases be required to furnish a copy of Form W-4MNP to the Minnesota Department of Revenue.
 
Do the Minnesota state withholding rules apply regardless of the location of your financial organization? E.g., Minnesota resident takes a distribution from her IRA at a financial organization located in California.
Yes. The withholding requirement applies to Minnesota residents, regardless of the location of your financial organization.
 
Your financial organization will need to determine with your own legal counsel whether having any IRA owners residing in Minnesota subjects you to the Minnesota withholding requirements if they have no other tax presence in the state. That said, any financial organization outside of Minnesota that already has a Minnesota tax withholding account is subject to the requirements.
 
Does an election that may have been made by the IRA owner, stay with the IRA like federal elections do?
Yes. This means that if a one-time distribution is taken from an IRA that is set up with scheduled payments, the scheduled payments will follow the election made on the one-time payment; further, that a subsequent election would be needed to resume the prior election made for the future scheduled payments. This includes an election made for no withholding.
 
Where can your financial organizations get more information on the Minnesota withholding rules and Form W-4MNP?
 

This FAQ is for informational purposes only and is not intended to provide a complete overview of Minnesota state withholding rules and regulations and may not reflect their application in every circumstance for all individuals. The information in this material is obtained from the Minnesota Department of Revenue, and every effort has been made to ensure its accuracy. Because state tax laws are subject to constant change and interpretation, often without prior notice, this FAQ reflects information available as of the time of its publication only and its timeliness and accuracy cannot be guaranteed. The information provided in this material should not be relied upon, and is not intended, as tax, legal, or accounting advice.