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HF1221 (Legislative Session 94 (2025-2026))

Tip income exempted from individual income tax and tax withholding requirements.

Related bill: SF1488

AI Generated Summary

Purpose

  • To exempt tip income from Minnesota's individual income tax and from state tax withholding requirements.

Main Provisions

  • Adds a new subdivision (Subd. 36) to Minnesota Statutes 290.0132, creating a “Tip income” provision.
  • Defines tip income as amounts that an individual reports to their employer under IRS rules (specifically Internal Revenue Code Section 6053(a)) or as wages reported to the IRS as wages subject to employer taxes under IRC Section 3121(q).
  • Establishes that tip income is a subtraction from a taxpayer’s income for Minnesota tax purposes (i.e., tips are not included in taxable income).
  • References related adjustments to state tax provisions (including an addition to Subd. 2a of another section) to implement the tipping subtraction and withholding changes.

Significance and Impact

  • Taxpayers who receive tips would have those tip amounts subtracted from Minnesota taxable income, reducing state income tax liability.
  • Employers would not withhold Minnesota income tax on tip income, aligning withholding with the new exclusion.
  • The bill aligns Minnesota’s treatment of tip income with how tips are reported for federal purposes.
  • The change could affect state revenue and would require employers to adjust payroll and reporting practices accordingly.

How This Changes Current Law

  • Current law includes tip income in taxable income and withholding where applicable.
  • The bill would remove tip income from taxable income and remove withholding requirements for tip income at the state level, by adding the new subdivision and related provisions.

Potential Considerations

  • Administrative burden on employers to implement the new subtraction and withholding changes.
  • Interaction with federal tip reporting and other state/ local tax rules.
  • Possible impact on state tax revenues and how the subtraction is applied across different payroll scenarios.

Relevant Terms

  • tip income
  • subtraction
  • Minnesota individual income tax
  • tax withholding
  • Minnesota Statutes 2024 § 290.0132
  • Subd. 36 (Tip income)
  • Internal Revenue Code § 6053(a)
  • Internal Revenue Code § 3121(q)
  • wages
  • employer taxes

Bill text versions

Actions

DateChamberWhereTypeNameCommittee Name
February 20, 2025HouseActionIntroduction and first reading, referred toTaxes
February 24, 2025HouseActionAuthors added
March 06, 2025HouseActionAuthor added

Citations

 
[
  {
    "analysis": {
      "added": [
        "Adds Subd. 36: Tip income, creating a subtraction from Minnesota individual income tax for tip income."
      ],
      "removed": [],
      "summary": "Adds Subdivision 36 to Minnesota Statutes, section 290.0132, to treat tip income as a subtraction from taxable income; defines tip income as amounts reported to an employer under IRC § 6053A or otherwise reported to the Internal Revenue Service as wages for purposes of employer taxes under IRC § 3121(q).",
      "modified": [
        "Amends Minnesota Statutes 2024 section 290.0132 to add a subdivision."
      ]
    },
    "citation": "290.0132",
    "subdivision": "Subd. 36"
  },
  {
    "analysis": {
      "added": [
        "Adds Subd. 2a to Minn. Stat. § 290.92."
      ],
      "removed": [],
      "summary": "The bill also amends Minnesota Statutes 2024 section 290.92 by adding Subd. 2a (content not provided in the excerpt).",
      "modified": []
    },
    "citation": "290.92",
    "subdivision": "Subd. 2a"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "The bill references Internal Revenue Code § 6053A in defining tip income; tip income is described as amounts reported to the employer under § 6053A.",
      "modified": []
    },
    "citation": "Internal Revenue Code § 6053A",
    "subdivision": ""
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "The bill references Internal Revenue Code § 3121(q) in relation to wages that are subject to notice and demand for payment of employer taxes.",
      "modified": []
    },
    "citation": "Internal Revenue Code § 3121(q)",
    "subdivision": ""
  }
]

Progress through the legislative process

17%
In Committee

Sponsors

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