HF3525

Purpose

This bill aims to align Minnesota state tax treatment with federal rules by allowing a deduction for qualified tip income. It treats qualified tips as a subtraction from Minnesota taxable income.

Main Provisions

• Adds Subdivision 40 (Tip income) to Minnesota Statutes 2024 section 290.0132.
• The amount of qualified tips allowed as a deduction under Internal Revenue Code (IRC) section 224 is treated as a subtraction for Minnesota income tax purposes.
• The subtraction is allowed for taxable years beginning after December 31, 2028.
• The subtraction is allowed notwithstanding IRC section 224(h) of the Internal Revenue Code, meaning Minnesota will apply the subtraction even if federal rules would limit or modify the deduction.

Effects and What It Means

• Taxpayers who have qualified tip income will be able to reduce their Minnesota taxable income by the same amount allowed under federal IRC 224, starting with tax years after 2028.
• This change is designed to prevent misalignment between federal and Minnesota tax treatment of tip income and to reduce the state tax burden for workers who receive tips.

Significant Changes to Existing Law

• Creates a new subtraction specifically for tip income under the Minnesota tax code (Subd.40), altering how tip income is treated for state taxation.
• Establishes a post-2028 applicability date, delaying the effect until tax years after 2028.
• Overrides potential federal limitations via the Notwithstanding clause, ensuring the Minnesota subtraction applies even if IRC 224(h) would restrict it.

Effective Date

• The subtraction applies to taxable years beginning after December 31, 2028.

Relevant Terms - qualified tips - deduction - subtraction - Internal Revenue Code (IRC) - Section 224 - Minnesota Statutes 290.0132 - Subd.40 - tip income - taxable years beginning after December 31, 2028 - Notwithstanding