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HF3525 (Legislative Session 94 (2025-2026))

Federal individual income tax deduction for qualified tip income adopted.

Related bill: SF3738

AI Generated Summary

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

Bill text versions

Past committee meetings

  • Taxes on: March 03, 2026 10:15

Actions

DateChamberWhereTypeNameCommittee Name
February 19, 2026HouseActionIntroduction and first reading, referred toTaxes
March 05, 2026HouseActionAuthor added
March 12, 2026HouseActionAuthor added
March 16, 2026HouseActionAuthor added

Citations

 
[
  {
    "analysis": {
      "added": [
        "Subd. 40 'Tip income' added to Minn. Stat. 290.0132.",
        "Defines qualified tips as a subtraction tied to IRC § 224."
      ],
      "removed": [],
      "summary": "Adds Subd. 40 to Minnesota Statutes 2024 section 290.0132 establishing a subtraction for tip income (qualified tips) based on the deduction allowed under the federal Internal Revenue Code.",
      "modified": [
        "Creates a new subtraction for taxable years beginning after December 31, 2028."
      ]
    },
    "citation": "290.0132",
    "subdivision": "Subd. 40"
  },
  {
    "analysis": {
      "added": [
        "Cites IRC § 224 and (h) as the source of the tip income deduction."
      ],
      "removed": [],
      "summary": "References the federal Internal Revenue Code section 224, subsection (h), as the source of the tip income deduction used by Minnesota in its tax provision.",
      "modified": []
    },
    "citation": "26 U.S.C. § 224",
    "subdivision": "(h)"
  }
]

Progress through the legislative process

17%
In Committee

Sponsors

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