SF3739

Purpose

• Align Minnesota individual income tax with a federal rule by allowing a subtraction from Minnesota taxable income for the amount of qualified overtime compensation that is deductible under the federal Internal Revenue Code. The change aims to let overtime compensation reduce a Minnesota filer’s taxable income, similar to the federal treatment.

Main Provisions

• Adds a new subdivision (Subd. 40) to Minnesota Statutes 2024 section 290.0132.
• Overtime income: The amount of qualified overtime compensation that would be allowed as a deduction under the federal Internal Revenue Code is treated as a subtraction to Minnesota taxable income.
• The subtraction is allowed for taxable years beginning after December 31, 2028 (i.e., starting in 2029).
• Notwithstanding section 225, paragraph g of the Internal Revenue Code, the subtraction described in this subdivision is allowed for the specified future taxable years.

Significance and Changes to Law

• New tax deduction: Creates a Minnesota subtraction for qualified overtime compensation, mirroring the federal deduction.
• Delayed effective date: The subtraction does not apply before 2029; it begins with tax years starting after December 31, 2028.
• Overrides federal limit for Minnesota purposes: The not-withstanding language signals Minnesota will allow this subtraction despite the federal limit in IRC Section 225(g).
• Potential impact: Could reduce Minnesota individual income tax for workers who receive qualified overtime compensation, starting in 2029.

Relevant Terms - qualified overtime compensation - subtraction - Internal Revenue Code - Section 225 - Notwithstanding - taxable years beginning after December 31, 2028 - overtime income - Minnesota Statutes 290.0132 - Subd.40