MN
Does Minnesota tax tips and overtime?
The federal deduction and the Minnesota deduction are separate questions. Here is where Minnesota actually lands, and why.
How Minnesota builds its tax base
Minnesota starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in Minnesota
Still taxedMinnesota Form M1 line 1 starts from federal adjusted gross income (federal Form 1040 line 11), so the below-the-line IRC 224 deduction never reduced the Minnesota base and no decoupling was needed. The 2026 omnibus tax bill (Session Laws 2026, ch. 128 / H.F. 2438, signed 27 May 2026) advanced Minnesota's static IRC conformity date to 1 May 2026, but the Dept. of Revenue's enacted-bill analysis itemizes every P.L. 119-21 provision with a Minnesota effect and contains no tip-deduction subtraction - the only tip item is the business-side FICA tip credit expansion (beginning TY25). The standalone conformity bills (HF 3525, and HF 3955 in 2026) were not enacted; tips remain fully taxable at Minnesota's 5.35%-9.85% rates.
Source: Minnesota Dept. of Revenue, Analysis of Session Laws 2026, Chapter 128 (H.F. 2438), 26 May 2026 - "Federal Update: Public Law 119-21" provision table · last reviewed
Overtime in Minnesota
Still taxedIdentical mechanism and identical outcome: the IRC 225 deduction is below-the-line and Minnesota starts from federal AGI, and the enacted 2026 omnibus tax bill's federal-update table contains no qualified-overtime subtraction. HF 3524 (and HF 3954 in 2026), which would have created a Minnesota subtraction matching the federal overtime deduction, did not pass; DOR had scored the pair at roughly $366M (overtime) and $126M (tips) in FY2027. Minnesota overtime income remains fully taxable.
Source: Minnesota Dept. of Revenue, Analysis of Session Laws 2026, Chapter 128 (H.F. 2438), 26 May 2026; Minnesota Dept. of Revenue "Tax Law Changes" page · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.