If you’re hiring an out-of-state (non-Minnesota) construction contractor for a Minnesota project — or you are that contractor — Minnesota’s surety deposit rules can impact your payments, timelines, and cash flow.
Minnesota’s Department of Revenue (DOR) recently updated its guidance and continues to emphasize a key compliance point: the hiring party may need to withhold 8% of the contractor’s compensation as a “surety deposit.”
This article explains when the 8% applies, where it’s paid, how contractors can avoid cash withholding with a bond, and when exemptions may apply.
What is Minnesota’s surety deposit requirement?
Minnesota’s surety deposit is a compliance mechanism that helps ensure a non-Minnesota contractor meets Minnesota tax obligations (including withholding, sales and use, franchise, and income taxes). The funds are deposited with the Minnesota DOR and held until the contractor satisfies applicable tax liabilities.
When does the 8% withholding requirement apply?
Per the Minnesota DOR, payments are subject to 8% withholding only if:
- The work is performed in Minnesota, and
- The value of the contract exceeds $50,000, and
- You hire/contract with a non-Minnesota construction contractor
If those conditions are met, the hiring party generally must withhold 8% of each payment to that contractor as a Minnesota surety deposit.
Where does the 8% go (and what form is used)?
The withheld amount is deposited with the Minnesota Department of Revenue (the hiring party doesn’t keep it). To transmit the withheld surety deposit, the DOR instructs filers to use Form SDD (Surety Deposit for Non-Minnesota Contractor).
Can contractors avoid cash withholding?
A non-Minnesota contractor may qualify for an exemption from the cash surety deposit requirement if they provide a bond secured by a surety company licensed in Minnesota (like ZipBonds) and equal to 8% of the contract. The bond remains in effect until the contractor satisfies Minnesota tax liabilities.
Minnesota’s required bond form: Form SDB, Non-Minnesota Contractor’s Bond
What does the bond typically cost?
In most markets, contractors usually pay a premium of 1%–5% of the bond amount (depending on credit and financial strength). Underwriting commonly requires:
- Business financials
- Personal financials (owners/principals)
- Personal credit review of the owners
(This is pricing/underwriting info typical to surety markets; Minnesota’s rules set the required bond amount itself.)
3 Other Ways a Contractor May Qualify for Exemption
Minnesota’s guidance also describes situations where the contractor may be exempt from the surety deposit/withholding requirement, including:
- Cash surety (financial institution evidence): A contractor may provide a cash surety via proof of a savings account, deposit account, or certificate of deposit with a qualifying financial institution doing business in Minnesota (interest/dividends generally remain with the contractor).
- Government agency work with payment & performance bond: A contractor performing work for a government agency may qualify when a payment and performance bond is in place (as described in the DOR guidance).
- Prior Minnesota compliance (past three calendar years): If the contractor has done construction work in Minnesota during the past three calendar years and fully complied with Minnesota tax laws, they may apply for exemption by registering for a Minnesota Tax ID and filing Form SDE.
Form SDE, Exemption from Surety Deposits for Non-Minnesota Contractors: If approved, the DOR signs and returns the form; the contractor provides the signed exemption (Form SDE) to the hiring party as proof they are exempt from the 8% surety deposit withholding.
After the job is completed, can the contractor get the surety deposit back?
Yes, after the project is completed and Minnesota determines the contractor’s tax liabilities, the contractor can apply for a refund using Form SDR (Refund of Surety Deposits for Non-Minnesota Contractors).
Apply for Your Minnesota Out-of-State Contractor Bond
If your Minnesota construction contract is over $50,000, and the contractor is non-Minnesota, plan ahead:
- Hiring parties may need to withhold and remit 8% as a surety deposit.
- Contractors can often avoid cash withholding by providing a bond equal to 8% of the contract (Form SDB) or qualifying for an exemption (Form SDE).
At ZipBonds, we help non-Minnesota contractors secure the correct Minnesota surety deposit bond quickly, with underwriting built around your financials and owner credit, so you can stay compliant without tying up cash flow.