Updated: August 21, 2023
There are a lot of big things in the state of Minnesota, including the Mall of America and a 52-block skyway system. That being said, running a successful small business is probably the biggest one for you, so let’s help with a task you want to get right — calculating payroll taxes.
Simply grab each employee’s W-4 and wage information and enter them into our handy payroll withholding calculator at the top of this page. We’ll do the math so you can write paychecks and take care of taxes. And below, we’ve compiled information that employers can use to stay ahead of their obligations.
Federal Payroll Taxes for Minnesota employers
First things first, we have to give Uncle Sam his due. Federal taxes are the biggest part of payroll taxes. We’ll quickly go over what you need to know when it comes to federal income taxes. If you would like to see a detailed rundown, we invite you to check out our step-by-step guide for more information.
- Calculate Gross Wages:
- For all your hourly employees, multiply their hours worked by the pay rate. Don’t forget to increase the rate for any overtime hours.
- For all your salaried employees, divide each employee’s annual salary by the number of pay periods you have.
- For all employees, don’t forget to add in bonuses, tips, and commissions. They all count toward gross wages.
- Calculate Any Pre-Tax Withholdings: If your employees contribute to FSA, HSA, 401(k), or have any other pre-tax benefits, deduct the appropriate amount from their gross pay before you calculate payroll taxes.
- Deduct Federal Income Taxes: Here comes the big enchilada. Federal tax rates can range anywhere from 0% to 37% of taxable earnings. We won’t get into the nitty-gritty here, but you can find further withholding information through the IRS website.
- Deduct and match any FICA taxes:
- Social Security tax, which is 6.2% of each employee’s taxable wages up until they reach $160,200 for the 2023 tax year, which means the maximum Social Security tax that each employee has to pay is $9,932.40 for the year. Employers also have to match the 6.2% tax, dollar-for-dollar.
- Medicare tax, which is 1.45% of each employee’s taxable wages up to $200,000 for the year. For any wages above $200,000, there is what’s called the Additional Medicare Tax of 0.9%, which brings the total rate to 2.35%. Employers have to pay a matching 1.45% of Medicare tax, but only the employee is responsible for paying the 0.9% Additional Medicare Tax.
- Calculate the FUTA Unemployment Tax, which is 6% of the first $7,000 of each employee’s taxable income. Only employers are responsible for paying the FUTA tax, not employees. But here’s a big caveat: if you pay state unemployment taxes in full and on time, you are eligible for a tax credit of up to 5.4%, which brings your effective FUTA tax rate to 0.6%. If this whopping 90% savings in FUTA tax doesn’t get you to pay on time, nothing will.
- Subtract Post-Tax Deductions, which can be anything from court-ordered wage garnishments to child support. Most of your employees won’t have post-tax deductions, but you still have to look out for them.
Minnesota (MN) state payroll tax rates
Now that we’re done with federal income taxes, let’s tackle Minnesota state taxes. The State of Minnesota has a progressive income tax, meaning the more money your employees make, the higher the income tax. The income tax rate ranges from 5.35% to 9.85%.
The state tax is pretty high compared to other states, but at least Minnesota doesn’t impose any local taxes.
Reporting new hires in Minnesota
One of the items to add to your to-do list is reporting all newly hired, re-hired and any returning to work employees to the Minnesota Department of Human Services. You’ll want to do this within 20 days of the date they are hired, rehired, or return to work.
According to Minnesota’s new hire checklist, employers who submit reports electronically must do so in two monthly transmissions and not more than 16 days apart.
To take care of this task, you can share information a few ways.
- Online through Minnesota’s New Hire Reporting Employer Registration website
- By mail at this address:
Minnesota New Hire Reporting Center, P.O. Box 64212, St. Paul, MN 55164-0212.
- Fax: 800-692-4473.
Or many companies that offer payroll software can handle new hire reporting for employers in most states, including Minnesota.
Minnesota state unemployment insurance (SUI) rates
Employers are required to pay state unemployment insurance. Unfortunately, Minnesota’s is quite complex. The tax rate changes on a yearly basis and is dependent on many things, including wages and industry, but is generally between 0.1 to 9%. Unemployment taxes are especially complicated in the construction business, and can range as high as 8.9%.
Minnesota’s new employer tax rates range from 1.1% to 9%, including the 0.1% base tax rate and also vary by industry. Minnesota’s Unemployment Insurance Program provides a 2023 table that includes an industry overview.
The one constant for all employers is that the wage base is $40,000 for each employee, in 2023. For reference, in 2022 it was $38,000.
Click here to see more details about Minnesota SUI and all the rates.
Cut those checks!
Now that you’ve mastered both federal and state taxes, you’re on your way to becoming a big thing in Minnesota! Once you’ve withheld taxes and calculated each employee’s net pay, you’ll be ready to spread the wealth.
Don’t forget to set aside the employer taxes your business is responsible for paying, or else you will have a big tax surprise when year-end rolls around.
Federal tax filings are due quarterly by filing Form 941 and annually by filing Form 940. You can pay taxes on an ongoing basis via the EFTPS payment system. Employment tax due dates can be found here.
Additional payroll tax resources for Minnesota employers
If you want to learn more about Minnesota payroll taxes, we suggest you start with these websites:
More helpful payroll calculators
Minnesota employers are welcome to use the calculator at the top of this page to quickly calculate their employees’ gross pay, net pay, and deductions (and feel confident when cutting paychecks). But every once in a while, businesses have situations that require a bit more number crunching. For example, do you reward your top-performing employees with bonuses? Keep in mind that Uncle Sam considers this type of payment to be supplemental wages and requires taxes to be withheld. Also, if you have workers who come and go, there may be times when you need to figure out what their final paycheck will be. So, if you can use a little more help managing the math, check out some of the calculators listed below.