HF164 (Legislative Session 94 (2025-2026))
Tip income exempted from the individual income tax and tax withholding requirements.
AI Generated Summary
Purpose
- The bill aims to exempt tip income from Minnesota's individual income tax and from tax withholding requirements.
Key Provisions
- Adds a new subdivision (36) called “Tip income” to Minnesota Statutes 2024, section 290.0132.
- 36(a) The amount of tips is a subtraction (i.e., excluded from taxable income for state tax purposes).
- 36(b) Defines “tip income” as amounts that an individual reports to their employer under Internal Revenue Code section 6053A, or as wages that are subject to notice and demand for payment of employer taxes under IRC section 3121(q).
How it changes existing law
- Creates a state tax treatment for tip income that removes tips from the calculation of Minnesota individual income tax and from tax withholding.
- Ties the definition of tip income to federal reporting rules (6053A) and to federal rules about employer taxes (3121(q)).
Definitions / Clarifications
- Tip income: amounts reported to an employer under 6053A or reported to the IRS as wages for employer tax purposes under 3121(q).
- Subtraction: a deduction from federal-adjusted income when calculating Minnesota taxable income.
- Tip/Gratuities: the cash or non-cash amounts given to workers as tips that meet the above reporting criteria.
Potential Implications
- Shifts state tax treatment of tips, potentially reducing taxable income for tip-related earnings at the state level.
- Uses federal reporting definitions, linking state treatment to federal systems for reporting tips and employer taxes.
Relevant Terms - tip income, tips, gratuities - subtraction - Minnesota Statutes 2024 § 290.0132 - subdivision 36 / Tip income - Internal Revenue Code (IRC) - 6053A - 3121(q) - employer taxes - tax withholding - individual income tax - wages
Actions
| Date | Chamber | Where | Type | Name | Committee Name |
|---|---|---|---|---|---|
| February 10, 2025 | House | Action | Introduction and first reading, referred to | Taxes | |
| February 17, 2025 | House | Action | Author added |
Citations
[
{
"analysis": {
"added": [
"Subd. 36. Tip income (Minn. Stat. 290.0132) establishing tip income as a subtraction from the individual income tax base.",
"References to federal tip reporting/withholding in the definition (see federal references to the Internal Revenue Code)."
],
"removed": [],
"summary": "Adds Subd. 36 (Tip income) to Minn. Stat. 290.0132 to treat tip income as a subtraction from Indiana? Minnesota's individual income tax base, effectively exempting tips from taxation under the state income tax.",
"modified": [
"Adds a new subtraction mechanism for tip income under Minn. Stat. 290.0132, Subd. 36."
]
},
"citation": "290.0132",
"subdivision": "Subd. 36"
},
{
"analysis": {
"added": [
"Subd. 2a added to Minn. Stat. 290.92 (new provision related to tip income treatment).",
"Cross-references to federal law for tip-related reporting/withholding."
],
"removed": [],
"summary": "Amends Minn. Stat. 290.92 by adding Subd. 2a, related to the treatment of tip income under the state tax framework.",
"modified": [
"Incorporates an additional subdivision (2a) within 290.92 to align with the new tip income subtraction."
]
},
"citation": "290.92",
"subdivision": "Subd. 2a"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "Cited in the bill as the federal law governing tip income reporting for employees (Internal Revenue Code).",
"modified": []
},
"citation": "26 U.S.C. § 6053A",
"subdivision": ""
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "Cited in the bill in relation to wages that are subject to notice and withholding requirements under the Internal Revenue Code.",
"modified": []
},
"citation": "26 U.S.C. § 3121(q)",
"subdivision": ""
}
]Progress through the legislative process
In Committee