For more than four decades, Minnesota and Wisconsin residents who worked in one state but lived in the other only had to file a single state return, thanks to a reciprocity deal between the neighbors.
Not anymore. Beginning with tax year 2010, residents who work across state lines may have a tax liability in the state where they work as well.
According to the Minnesota Department of Revenue, the change, which was announced in fall 2009, will affect roughly 13,000 of the 22,000 Minnesota residents who work in Wisconsin and an estimated 33,500 of the 57,000 Wisconsin residents who work in Minnesota.
Why did Minnesota end the longstanding agreement? More Wisconsin residents work in Minnesota, so the system was set up so that the state of Wisconsin reimburses Minnesota for the income tax collected from Minnesota workers. The problem is with the 17-month lag between the time the money is collected and when the payments arrive in St. Paul. With the looming budget deficit, Minnesota needs its income tax revenue yesterday.
So what does this mean for affected residents? More tax forms.
"Administratively, it's going to really be a pain," said John Barghini, a tax partner with Hansen, Jergenson, Nergaard and Company in Minneapolis. While his clients will only have to sign an extra form, it will mean more work for his office, which may show up in the client's bill.
If you file your own taxes, it means an extra return to fill out. Software programs typically charge by the return, so your costs to prepare your taxes will likely increase too. And let's hope the tax software program asks the right questions.
For details about filing returns in more than one state, take a look at the Minnesota Department of Revenue's cheat sheet.
