Muhammad, 24, has played his four NBA seasons with the Timberwolves, and keeping him promises to be a major boost for the Wolves bench.
Muhammad will sign for the veteran's minimum of $1.6 million, a league source said. The deal could include a player option for a second year, but that was still an ongoing conversation on Tuesday, league sources said.
Muhammad turned down better paying offers that included the bi-annual and room exception to return to a potentially playoff-bound Minnesota team and return to free agency in 2018 with the option of Minnesota re-signing him to a longer team deal, sources said. The Timberwolves could be more limited next summer in the players they can acquire in free agency, and owning Muhammad's Bird Rights could make him the team's most viable long-term option.
Minnesota renounced Muhammad's cap hold, making him an unrestricted free agent in July. It was move that allowed the Timberwolves to clear salary cap space to sign free agents Jeff Teague and Taj Gibson.
Muhammad's free agency was a circuitous one. He left the Landmark Sports agency at the start, took on the process elsewhere without success and returned recently to Landmark to do the veteran's minimum deal with Minnesota that can be a prelude to next summer.
Muhammad averaged 9.9 points in 19.4 minutes as one of Minnesota's key reserves last season. He was the 14th overall pick in the 2013 NBA draft.
Muhammad returns to a team that has transformed its roster, including the acquisitions of All-Star guard Jimmy Butler and veteran free agents Teague and Gibson. Muhammad will anchor a deeper bench that includes the addition of veteran guard Jamal Crawford.