Minnesota allows those who work in the state to be exempt from paying state income tax if they are a legal resident of Michigan or North Dakota. Taxpayers who live in these two states are able to work in Minnesota without having to worry about filing a return for the money they earn in the state. Instead, they will only have to file a single return in their state of residence.

This agreement, known as a reciprocal tax agreement, makes tax time easier. Workers only need to submit Form MWR to their employer to have their earned wages exempt.

Any other form of income, including sources such as rental income, personal property sales, and lottery winnings, are not covered under the reciprocal agreement, as it only applies to money earned from employment. Other non-employment include can include money made from contract or consulting work, earnings from a partnership, LLC, or S-Corporation, and interest.

In these cases, a taxpayer would need to file a Minnesota non-resident return and report the amount of income. Those who work in Minnesota and live in a state that is not Michigan or North Dakota will also have to file a non-resident return, because the agreement only exists between those two states. However, in most cases, you can claim a credit for the taxes paid to Minnesota when you file your state tax return in your resident state.