For over 40 years, Minnesota and Wisconsin were united in a tax reciprocity agreement, making it easier for residents to file a single income tax return with their home state if they worked across the border. The end of this agreement in 2010 affected over 80,000 people in the two states. Since then, there’s been an ongoing debate to reinstate the policy.
In states that share borders like these, reciprocity makes it easier for taxpayers who live in one state but work in another to file income tax returns. Wisconsin, in particular, is keen on this idea and therefore restoring the tax reciprocity. The agreement originally ended due to lags in payments from Wisconsin;
Now, the argument for not reinstating comes mainly from Minnesota. Since the tax reciprocity arrangement ended in 2010, Minnesota’s increased its revenue. How? While under the tax reciprocity plan with Wisconsin, Minnesota residents paid more to the Minnesota treasury because Minnesota limits tax credits to other states while Wisconsin does not. Wisconsin’s state taxes are also higher than Minnesota’s. Without the tax reciprocity, Minnesotans are not paying these higher taxes. More Wisconsin residents work in Minnesota as well. Because of this, Minnesota began offering Minnesota residents who work in Wisconsin a special tax credit in August 2017 - a move that essentially nullified talks of reinstating tax reciprocity.
However, Wisconsin is still open to restoring its full tax reciprocity agreement with Minnesota as of December 2017.