HF164

Purpose

• The bill aims to exempt tip income from Minnesota's individual income tax and from tax withholding requirements.

Key Provisions

• Adds a new subdivision (36) called “Tip income” to Minnesota Statutes 2024, section 290.0132.
  • 36(a) The amount of tips is a subtraction (i.e., excluded from taxable income for state tax purposes).
  • 36(b) Defines “tip income” as amounts that an individual reports to their employer under Internal Revenue Code section 6053A, or as wages that are subject to notice and demand for payment of employer taxes under IRC section 3121(q).

How it changes existing law

• Creates a state tax treatment for tip income that removes tips from the calculation of Minnesota individual income tax and from tax withholding.
• Ties the definition of tip income to federal reporting rules (6053A) and to federal rules about employer taxes (3121(q)).

Definitions / Clarifications

• Tip income: amounts reported to an employer under 6053A or reported to the IRS as wages for employer tax purposes under 3121(q).
• Subtraction: a deduction from federal-adjusted income when calculating Minnesota taxable income.
• Tip/Gratuities: the cash or non-cash amounts given to workers as tips that meet the above reporting criteria.

Potential Implications

• Shifts state tax treatment of tips, potentially reducing taxable income for tip-related earnings at the state level.
• Uses federal reporting definitions, linking state treatment to federal systems for reporting tips and employer taxes.

Relevant Terms - tip income, tips, gratuities - subtraction - Minnesota Statutes 2024 § 290.0132 - subdivision 36 / Tip income - Internal Revenue Code (IRC) - 6053A - 3121(q) - employer taxes - tax withholding - individual income tax - wages