About 60,000 people work in Minnesota and live in Wisconsin –primarily in the Hudson area. About 20,000 people work in Wisconsin and live in Minnesota –primarily in the Winona area. Recently these people have been filing two sets of income tax returns each year, one for each state, due to the breakdown in the reciprocity agreement.

A reciprocity agreement was reportedly in place for 41 years but was discontinued in 2009 when the two states could not agree on the timing of the payment from Wisconsin to Minnesota. That payment is to make up the financial difference between income tax revenue for the additional tax payers that live in Wisconsin but work in Minnesota.

According to news sources, the sticking point is now the estimated amount of funds to be transferred. Minnesota is estimating $96 million and Wisconsin is estimating a little more than $55 million. At least this time the states have agreed upon a date. They must reach an agreement on the amount by October 1st so that the reciprocity can be reinstated by January 1st.

The Wisconsin and Minnesota Departments of Revenue are reportedly working on the numbers. Meanwhile, 16 Wisconsin legislators sent a letter to Minnesota Governor Mark Dayton expressing their deep concern.

This is a problem that everyone apparently wants to see fixed, including the taxpayers who are filing double sets of state income tax returns. For those who are working and living across the border, it may be a good idea to consult with a tax or legal professional before filing any 2012 state income tax reports.

Source: Pioneer Press, “Minnesota/Wisconsin tax reciprocity deal might be bogging down,” Andy Rathbun, Aug. 16, 2012

Our Twin Cities law firm represents clients with controversy related to tax problems, audits, back taxes and other tax and legal issues similar to those described in this post.