SF4624

Purpose

• To adopt the federal treatment of qualified overtime compensation into Minnesota personal income tax by adding a new section that creates an overtime-related subtraction to Minnesota taxable income.

Main provisions

• Adds Subd.40, titled “Overtime income,” to Minnesota Statutes 2024, section 290.0132.
• The amount of qualified overtime compensation that the federal Internal Revenue Code allows as a deduction (under section 225) would be treated as a subtraction from Minnesota taxable income.
• The subtraction is allowed despite (overrides) the federal rule described in Internal Revenue Code section 225(g) for the purposes of Minnesota tax.
• This subtraction applies to taxable years beginning after December 31, 2028 (i.e., starting with tax year 2029 and later).

Significance and expected impact

• Taxpayers who receive qualified overtime compensation could reduce their Minnesota taxable income beginning in 2029.
• The bill aligns Minnesota law with a federal approach to overtime pay, at least as applied to the subtraction from income for state tax purposes.
• It creates a new tax provision outside the standard deduction framework by allowing a subtraction rather than a credit or standard deduction.

Implementation notes

• The amount eligible for subtraction is tied to the federal deduction for qualified overtime compensation (as defined by Internal Revenue Code Section 225).
• The use of “Notwithstanding” indicates Minnesota will permit the subtraction even if federal rules under IRC Section 225(g) would limit it.

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Relevant Terms - qualified overtime compensation - overtime income - subtraction - deduction - Internal Revenue Code (IRC) - Section 225 - Notwithstanding - paragraph g - Minnesota Statutes 2024 section 290.0132 - Subd.40 - taxable years beginning after December 31, 2028 - overtime income (as a defined category)