Purpose

This bill aims to change how federal income tax is handled for state employees. It would stop the state from withholding federal income tax from employees’ wages and from sending that tax to the IRS. It does this by adding a new subdivision to a Minnesota tax statute and by repealing a prior related provision.

Main Provisions

• Adds Subd. 32 to Minnesota Statutes 2024 section 290.92 to prohibit federal income tax withholding for state employees.
• Applies when payroll is prepared by the commissioner of management and budget under section 16A.17 or when the head of an agency pays its employees directly; in those cases, the commissioner or agency head must not withhold or remit federal income tax.
• Repeals Minnesota Statutes 2024 section 16A.13.1.5.

Significance and Effects

• Practical effect: Federal income tax would no longer be withheld from state employee wages, nor would the state remit federal taxes to the IRS on behalf of these employees.
• Employee impact: Workers would not have federal tax automatically deducted from their paychecks and would need to manage federal tax payments directly to the IRS, potentially through estimated payments or other arrangements.
• Legal/administrative impact: Changes how state payroll interacts with federal tax collection and removes a previously existing statutory provision related to this withholding.

What would change in practice vs. current law

• Current practice (before the bill): State payroll systems withhold federal income tax from employees’ wages and remit it to the IRS.
• After the bill (if enacted): No federal income tax would be withheld or remitted by the state for state employees.

Potential considerations

• Compliance and timing: Employees would need to ensure they meet federal tax obligations without employer withholding.
• Federal-state relationship: Could raise questions about alignment with federal tax requirements and employee budgeting.

Relevant Terms federal income tax withholding; state employees; payroll; commissioner of management and budget; section 16A.17; head of an agency; withhold or remit federal income tax; Minnesota Statutes 2024 section 290.92; Subd. 32; Minnesota Statutes 2024 section 16A.13.1.5; repeal.