HF3524

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