Tax refunds; overtime income tax subtraction provided, Minnesota child tax credit expanded, onetime expansion of property tax refunds provided, and new fifth tier individual income tax rate established.

A bill for an act

relating to taxation; income and property tax refunds; providing a subtraction for

certain overtime income; expanding the Minnesota child tax credit; providing a

onetime expansion of property tax refunds; establishing a new fifth tier individual

income tax rate; amending Minnesota Statutes 2024, sections 290.0132, by adding

a subdivision; 290.06, subdivision 2d; 290.0661, subdivisions 3, 7; Minnesota

Statutes 2025 Supplement, section 290.06, subdivision 2c.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2024, section 290.0132, is amended by adding a subdivision

to read:

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Subd. 40.

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Overtime income.

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The amount of qualified overtime compensation allowed

as a deduction under section 225 of the Internal Revenue Code is a subtraction.

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EFFECTIVE DATE.

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This section is effective retroactively for taxable years beginning

after December 31, 2024.

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Sec. 2.

Minnesota Statutes 2025 Supplement, section 290.06, subdivision 2c, is amended

to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income taxes

imposed by this chapter upon married individuals filing joint returns and surviving spouses

as defined in section 2(a) of the Internal Revenue Code must be computed by applying to

their taxable net income the following schedule of rates:

(1) On the first
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$38,770
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$48,700
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, 5.35 percent;

(2) On all over
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$38,770
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$48,700
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, but not over
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$154,020
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$193,480
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, 6.8 percent;

(3) On all over
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$154,020
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$193,480
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, but not over
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$269,010
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$207,660
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, 7.85 percent;

(4) On all over
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$269,010
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$207,660, but not over $1,000,000
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, 9.85 percent
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; and
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(5) On all over $1,000,000, 11.45 percent
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.

Married individuals filing separate returns, estates, and trusts must compute their income

tax by applying the above rates to their taxable income, except that the income brackets

will be one-half of the above amounts after the adjustment required in subdivision 2d.

(b) The income taxes imposed by this chapter upon unmarried individuals must be

computed by applying to taxable net income the following schedule of rates:

(1) On the first
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$26,520
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$33,310
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, 5.35 percent;

(2) On all over
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$26,520
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$33,310
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, but not over
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$87,110
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$109,430
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, 6.8 percent;

(3) On all over
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$87,110
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$109,430
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, but not over
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$161,720
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$114,050
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, 7.85 percent;

(4) On all over
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$161,720
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$114,050, but not over $600,000
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, 9.85 percent
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; and
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(5) On all over $600,000, 11.45 percent
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.

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying as

a head of household as defined in section 2(b) of the Internal Revenue Code must be

computed by applying to taxable net income the following schedule of rates:

(1) On the first
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$32,650
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$41,010
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, 5.35 percent;

(2) On all over
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$32,650
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$41,010
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, but not over
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$131,190
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$164,800
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, 6.8 percent;

(3) On all over
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$131,190
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$164,800
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, but not over
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$214,980
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$270,060
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, 7.85 percent;

(4) On all over
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$214,980
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$270,060, but not over $800,000
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, 9.85 percent
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; and
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(5) On all over $800,000, 11.45 percent
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.

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the tax

of any individual taxpayer whose taxable net income for the taxable year is less than an

amount determined by the commissioner must be computed in accordance with tables

prepared and issued by the commissioner of revenue based on income brackets of not more

than $100. The amount of tax for each bracket shall be computed at the rates set forth in

this subdivision, provided that the commissioner may disregard a fractional part of a dollar

unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute the

individual's Minnesota income tax as provided in this subdivision. After the application of

the nonrefundable credits provided in this chapter, the tax liability must then be multiplied

by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income as

defined in section 62 of the Internal Revenue Code and increased by:

(i) the additions required under sections
290.0131, subdivisions 2, 6, 8 to 10, 16, 17, 19,

and 20
, and
290.0137
, paragraph (a); and reduced by

(ii) the Minnesota assignable portion of the subtraction for United States government

interest under section
290.0132, subdivision 2
, the subtractions under sections
290.0132,

subdivisions 9, 14, 15, 18, 27, 31, and 32
, and
290.0137
, paragraph (c), after applying the

allocation and assignability provisions of section
290.081
, clause (a), or
290.17
; and

(2) the denominator is the individual's federal adjusted gross income as defined in section

62 of the Internal Revenue Code, increased by:

(i) the additions required under sections
290.0131, subdivisions 2, 6, 8 to 10, 16, 17, 19,

and 20
, and
290.0137
, paragraph (a); and reduced by

(ii) the subtractions under sections
290.0132, subdivisions 2, 9, 14, 15, 18, 27, 31, and

32
, and
290.0137
, paragraph (c).

(f) If an individual who is not a Minnesota resident for the entire year is a qualifying

owner of a qualifying entity that elects to pay tax as provided in section
289A.08, subdivision

7a
, paragraph (b), the individual must compute the individual's Minnesota income tax as

provided in paragraph (e), and also must include, to the extent attributed to the electing

qualifying entity:

(1) in paragraph (e), clause (1), item (i), and paragraph (e), clause (2), item (i), the

addition under section
290.0131, subdivision 5
; and

(2) in paragraph (e), clause (1), item (ii), and paragraph (e), clause (2), item (ii), the

subtraction under section
290.0132, subdivision 3
.

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EFFECTIVE DATE.

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This section is effective for taxable years beginning after December

31, 2025.

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Sec. 3.

Minnesota Statutes 2024, section 290.06, subdivision 2d, is amended to read:

Subd. 2d.

Inflation adjustment of brackets.

The commissioner shall annually adjust

the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed

in subdivision 2c as provided in section
270C.22
. The statutory year is taxable year
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2019
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2026
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. The rate applicable to any rate bracket must not be changed. The dollar amounts

setting forth the tax shall be adjusted to reflect the changes in the rate brackets. The rate

brackets as adjusted must be rounded to the nearest $10 amount. If the rate bracket ends in

$5, it must be rounded up to the nearest $10 amount. The commissioner shall determine the

rate bracket for married filing separate returns after this adjustment is done. The rate bracket

for married filing separate must be one-half of the rate bracket for married filing joint.

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EFFECTIVE DATE.

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This section is effective for taxable years beginning after December

31, 2025.

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Sec. 4.

Minnesota Statutes 2024, section 290.0661, subdivision 3, is amended to read:

Subd. 3.

Credit amount.

The credit under this section equals
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$1,750
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$2,000
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per

qualifying child.

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EFFECTIVE DATE.

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This section is effective for taxable years beginning after December

31, 2025.

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Sec. 5.

Minnesota Statutes 2024, section 290.0661, subdivision 7, is amended to read:

Subd. 7.

Inflation adjustment.

(a) For taxable years beginning after December 31,
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2025
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2026
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, the commissioner of revenue must annually adjust for inflation the credit amount in

subdivision 3 as provided in section
270C.22
. The adjusted amounts must be rounded to

the nearest $60. The statutory year is taxable year
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2025
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2026
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.

(b) For taxable years beginning after December 31, 2023, the commissioner of revenue

must annually adjust for inflation the phaseout thresholds in subdivision 4, as provided in

section
270C.22
. The statutory year is taxable year 2023.

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EFFECTIVE DATE.

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This section is effective for taxable years beginning after December

31, 2025.

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Sec. 6.
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TEMPORARY PROPERTY TAX REFUND INCREASE FOR 2026.
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(a) For claims filed based on taxes payable in 2026, the commissioner shall increase by

11.9 percent the refund otherwise payable under Minnesota Statutes, section 290A.04,

subdivision 2.

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(b) In adjusting homestead credit refunds under this section, the commissioner is not

required to provide information concerning appeal rights that ordinarily must be provided

whenever the commissioner adjusts refunds payable under Minnesota Statutes, chapter 290.

Taxpayers retain all rights to appeal adjustments under this section.

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(c) The amount necessary to make the payments required under this section is

appropriated from the general fund to the commissioner of revenue.

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EFFECTIVE DATE.

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This section is effective only for refunds based on property taxes

payable in 2026.

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