Tip income exempted from the individual income tax and tax withholding requirements.
Summary
HF 1368 would create a new Minnesota individual income tax subtraction for tip income. The bill defines tips by reference to federal reporting rules, covering amounts reported to an employer under Internal Revenue Code section 6053(a) and amounts reported to the IRS as wages subject to employer tax notice and demand under section 3121(q). In practical terms, eligible tip income would be removed from Minnesota taxable income beginning with taxable years after December 31, 2024.
The bill also amends Minnesota withholding law to exempt tip income from state withholding requirements. It preserves the existing framework for withholding wages generally, but adds a specific rule that tips, as defined in the new subtraction, are not subject to withholding under Minnesota law. The changes are tied to federal tip-reporting concepts, which means the state tax treatment would track federal reporting categories rather than creating a separate Minnesota definition of tipped earnings.
Impact
The bill would reduce Minnesota taxable income for workers who receive reported tips and would lower or eliminate state income tax liability on that income. It would also relieve employers from withholding Minnesota income tax on tip income covered by the new exemption, affecting payroll administration for businesses in tipped industries such as restaurants, hospitality, and personal services. The amendments would be codified in Minnesota Statutes sections 290.0132 and 290.92 and would apply prospectively to taxable years beginning after December 31, 2024.
Sentiment
Based on the bill text and the absence of recorded committee debate or votes, the measure appears straightforward and policy-driven, with a clear pro-worker, pro-tipped-employee orientation. The caption and structure suggest support for reducing tax burdens on gratuities and simplifying withholding for employers. Because there is no transcript or voting history provided, there is no documented evidence of broader support or opposition in committee.
Contention
The main policy issue is whether tip income should be treated differently from other earned income for state tax purposes. Supporters would likely view the bill as tax relief for low- and moderate-income tipped workers and as a way to align withholding rules with the practical realities of tip reporting. Potential concerns would likely come from those worried about reduced state revenue, preferential treatment for one category of workers, and administrative questions about defining and verifying which payments qualify as tips under federal reporting rules. No specific objections or amendments are reflected in the provided materials.