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SF3738 (Legislative Session 94 (2025-2026))

Federal deduction for qualified tip income adoption

Related bill: HF3525

AI Generated Summary

Purpose

The bill would add a new provision to Minnesota’s individual income tax statute to adopt the federal deduction for qualified tip income. This means tip income could reduce a Minnesota resident’s taxable income.

Main provisions

  • Adds Subdivision 40 to Minnesota Statutes, section 290.0132, titled “Tip income.”
  • Subdivision 40(a): The amount of qualified tips that is deductible under the Internal Revenue Code (IRC) Section 224 is treated as a subtraction from Minnesota taxable income.
  • Subdivision 40(b): The subtraction is allowed for taxable years beginning after December 31, 2028, and is allowed “notwithstanding” IRC Section 224(h). In other words, Minnesota would permit this tip income deduction even if federal rules restrict it in some cases.

Timing and scope

  • Applies to individual income tax.
  • Effective for taxable years starting after December 31, 2028.

Significance and potential impact

  • Provides a state-level deduction for tipped income, potentially reducing taxes for workers who earn substantial tips.
  • Represents alignment with a federal approach to tip income, while overriding certain federal limits for Minnesota purposes starting in 2029.

Relationship to existing law

  • Amends Minnesota Statutes 2024, section 290.0132 by adding a new subdivision (Subd. 40) to address tip income.
  • References Internal Revenue Code Section 224, including its particular provision (224(h)) as the basis for the subtraction, but then overrides the federal limitation for Minnesota taxpayers beginning after 2028.

Notable terms within the bill

  • Qualified tips
  • Deduction
  • Subtraction
  • Internal Revenue Code (IRC)
  • Section 224
  • Subd. 40 (Tip income)
  • Notwithstanding
  • Taxable years beginning after December 31, 2028

Relevant Terms - Tip income - Qualified tips - Subtraction - Deduction - Internal Revenue Code - IRC Section 224 - IRC Section 224(h) - Minnesota Statutes 290.0132 - Subdivision 40 - Taxable years after December 31, 2028 - Notwithstanding - Individual income tax

Bill text versions

Actions

DateChamberWhereTypeNameCommittee Name
February 23, 2026SenateActionIntroduction and first reading
February 23, 2026SenateActionReferred toTaxes

Citations

 
[
  {
    "analysis": {
      "added": [
        "Subd. 40 (Tip income) added to Minn. Stat. § 290.0132.",
        "References the federal deduction for tip income under the Internal Revenue Code."
      ],
      "removed": [],
      "summary": "Adds Subd. 40 (Tip income) to Minn. Stat. § 290.0132 to create a subtraction for qualified tips. The subtraction is tied to the federal deduction for tip income under the Internal Revenue Code, and the bill provides that the subtraction is available for taxable years beginning after December 31, 2028, notwithstanding IRC § 224(h).",
      "modified": [
        "Minn. Stat. § 290.0132 amended to add Subd. 40."
      ]
    },
    "citation": "290.0132",
    "subdivision": "Subd. 40"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "The bill relies on the Internal Revenue Code § 224 as the basis for the deduction for qualified tips that is being adopted as a subtraction under Minn. Stat. § 290.0132, Subd. 40.",
      "modified": []
    },
    "citation": "Internal Revenue Code § 224",
    "subdivision": ""
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "The bill includes a Notwithstanding clause referencing IRC § 224(h), indicating that the tip income subtraction is allowed for taxable years beginning after December 31, 2028, notwithstanding § 224(h).",
      "modified": []
    },
    "citation": "Internal Revenue Code § 224(h)",
    "subdivision": ""
  }
]

Progress through the legislative process

17%
In Committee

Sponsors

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