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HF3524 (Legislative Session 94 (2025-2026))

Federal individual income tax deduction for qualified overtime compensation adopted.

Related bill: SF3739

AI Generated Summary

Purpose

  • To adopt the federal treatment of a deduction for qualified overtime compensation for Minnesota residents. The bill adds a new subtraction to Minnesota income tax for overtime pay that qualifies under federal rules.

Main provisions

  • Adds a new Subdivision 40 called “Overtime income” to Minnesota Statutes 2024 section 290.0132.
  • The subtraction equals the amount of qualified overtime compensation that is deductible under Internal Revenue Code (IRC) section 225.
  • The subtraction is allowed for taxable years beginning after December 31, 2028.
  • It includes a not-withstanding clause: this subtraction applies even if IRC section 225(g) would otherwise limit or affect that deduction.

Significant changes to existing law

  • Creates a new subtraction in Minnesota tax law specifically for qualified overtime compensation, aligning Minnesota tax treatment with the federal deduction described in IRC §225.
  • Implemented beginning with tax years after 2028 (i.e., starting in 2029), introducing a transition period before the provision takes effect.
  • Uses a not-withstanding provision to override IRC §225(g) for the purposes of this Minnesota subtraction.

Effect and implications

  • Taxpayers who receive qualified overtime pay may reduce their Minnesota taxable income by the amount allowed under IRC §225.
  • The change is designed to bring Minnesota tax treatment in line with federal rules for overtime compensation, potentially lowering state taxes for eligible workers.
  • Could affect state revenue and require adjustments in how overtime pay is reported for state tax purposes.

Effective date and scope

  • Applies to taxable years beginning after December 31, 2028.
  • Applies to individual income tax (as part of Minnesota’s conformity with federal tax rules on overtime pay).

Practical notes

  • The term "qualified overtime compensation" refers to overtime pay that would be deductible under IRC §225.
  • The subtraction is a specific mechanism in Minnesota tax law (a deduction from Minnesota taxable income) rather than a change to federal law.
  • The not-withstanding clause means Minnesota will allow the subtraction even if federal rules (IRC §225(g)) would limit the corresponding deduction.

Relevant Terms - qualified overtime compensation - subtraction - deduction - Internal Revenue Code (IRC) - IRC §225 - IRC §225(g) - Minnesota Statutes 2024 §290.0132 - Subd. 40 OverTime income - taxable years beginning after December 31, 2028 - adopt federal deduction for qualified overtime compensation

Bill text versions

Past committee meetings

  • Taxes on: March 03, 2026 10:15

Actions

DateChamberWhereTypeNameCommittee Name
February 19, 2026HouseActionIntroduction and first reading, referred toTaxes
February 23, 2026HouseActionAuthor added
March 05, 2026HouseActionAuthors added
March 12, 2026HouseActionAuthor added

Citations

 
[
  {
    "analysis": {
      "added": [
        "Adds Subd.40(a): overtime income subtraction for qualified overtime compensation under IRC §225.",
        "Specifies that the subtraction is based on the amount of qualified overtime compensation allowed as a deduction under the Internal Revenue Code §225."
      ],
      "removed": [],
      "summary": "Adds Subdivision 40 (Overtime income) to Minnesota Statutes section 290.0132 to treat qualified overtime compensation as a subtraction under the individual income tax, tied to the federal deduction for qualified overtime compensation.",
      "modified": []
    },
    "citation": "Minnesota Statutes 2024 section 290.0132",
    "subdivision": "Subd.40.a"
  },
  {
    "analysis": {
      "added": [
        "Adds Subd.40(b): Notwithstanding IRC §225(g), the subtraction under Subd.40 is allowed for taxable years beginning after December 31, 2028."
      ],
      "removed": [],
      "summary": "Subparagraph b clarifies that the subtraction under Subd.40 is allowed notwithstanding Internal Revenue Code Section 225(g).",
      "modified": []
    },
    "citation": "Minnesota Statutes 2024 section 290.0132",
    "subdivision": "Subd.40.b"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "Federal law referenced by the bill as the basis for the overtime compensation deduction; the bill does not modify federal law.",
      "modified": []
    },
    "citation": "Internal Revenue Code § 225",
    "subdivision": ""
  }
]

Progress through the legislative process

17%
In Committee

Sponsors

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