HF417

Purpose

• To change Minnesota income tax rules by creating a new deduction (subtraction) for gratuities (tips) paid to employees. The bill adds a new subdivision to the state tax law to allow taxpayers to subtract gratuities from their Minnesota taxable income.

Main provisions

• Adds Subd. 36 to Minnesota Statutes 2024 section 290.0132.
• Subd. 36(a): The amount of gratuities is a subtraction (i.e., deductible from Minnesota taxable income).
• Subd. 36(b): For the purposes of this subdivision, gratuities have the meaning given in section 177.23 subdivision 9 (the bill cross-references the existing definition from that section).

Significant changes to existing law

• Creates a new subtraction specifically for gratuities paid to employees, changing how tips are treated for state income tax purposes.
• Ties the definition of gratuities to an existing statutory definition (Minnesota Statutes 177.23, subdivision 9), rather than introducing a new, separate definition.

Summary of implications

• Taxpayers who report gratuities received by employees could reduce their Minnesota taxable income by the amount of those gratuities.
• This change formalizes the tax treatment of tips as eligible for deduction under the state income tax, aligning with how some other forms of income are handled in Minnesota’s subtraction framework.

Practical considerations

• The subtraction applies to gratuities as defined by the referenced statute, so readers should consult Minnesota Statutes 177.23, subdivision 9 for the exact definition of gratuities.
• No dollar cap or other qualifiers are provided in the text excerpt; the subtraction is described as “the amount of gratuities,” suggesting the full gratuity amount may be deductible.

Effective scope

• Applies to individual income tax under Minnesota law (as amended by adding Subd. 36 to § 290.0132).

Relevant Terms - gratuities - tips - subtraction - Minnesota Statutes 2024 section 290.0132 - Subd. 36 - 177.23 subdivision 9 - individual income tax - tax deduction - tips paid to employees