Federal deduction for qualified overtime compensation adopted.

2025-2026 Regular Session Introduced by Jeff Backer and 2 co-sponsors

Minnesota adds a subtraction for qualified overtime pay (IRC § 225) from taxable income, retroactive to 2024-year filings, aligning state tax treatment with federal law.

Authors added Backer and Schwartz

#taxation-income

Purpose of the bill

HF 4586 seeks to modify Minnesota individual income tax by adopting a federal tax treatment for qualified overtime compensation. Specifically, it creates a subtraction (deduction) for the amount of qualified overtime pay that would be deductible under the federal Internal Revenue Code (IRC) § 225. The bill intends to align Minnesota’s tax treatment with federal law for overtime compensation earned by individuals.

Key provisions and changes

New subtraction/deduction category: Adds a new Subdivision 40 (Overtime income) to Minnesota Statutes § 290.0132.

Subd. 40(a): The amount of qualified overtime compensation that is deductible under federal IRC § 225 is allowed as a subtraction from Minnesota taxable income.
Subd. 40(b): The subtraction is allowed notwithstanding federal IRC § 225(g), meaning Minnesota’s subtraction provision applies even if there are limitations in federal law (to the extent provided by the Minnesota statute).

Effective date and retroactivity:

The subtraction is effective retroactively for taxable years beginning after December 31, 2024.
The bill states the effective date explicitly within the new subdivision text.

Federal alignment with Minnesota tax code:

The bill explicitly references adopting the federal deduction for qualified overtime compensation, but with Minnesota’s own retroactive effective date and a state subtraction under Minnesota law.

Who is affected

Taxpayers with qualified overtime compensation: Individuals who receive qualified overtime pay (as defined by federal IRC § 225) may see a reduction in Minnesota taxable income due to the new subtraction.

Minnesota tax filers for tax years after 2024: Because the subtraction applies retroactively to years beginning after December 31, 2024, affected taxpayers could potentially amend or adjust filings for those years, depending on state procedures.

State tax administration: Minnesota Department of Revenue would apply the subtraction when calculating net income for individual taxpayers who qualify.

Procedural and timeline aspects

Introduction and referral:

Introduced and referred to the House Taxes committee (03/23/2026).

Author and sponsor information:

Primary sponsors include Rep. HF4586 author, with co-sponsors Andrew Myers, Erica Schwartz, and Jeff Backer.

Action history:

2026-03-23: Introduction and first reading; referred to Taxes.
2026-03-25: Authors added (Backer and Schwartz).

Practical implications and considerations

The bill’s retroactive effective date could impact individuals with 2024- or later-year overtime income, potentially enabling Minnesota taxpayers to claim the subtraction on amended returns or during any applicable state tax calculation for qualified overtime compensation.

The subtraction mirrors federal treatment but preserves Minnesota’s ability to define and apply the subtraction through state law, including addressing any conflicts with federal § 225(g).

No other changes to tax brackets, rates, or other deductions are proposed in HF 4586; the focus is narrowly on overtime compensation.

If you’d like, I can provide a side-by-side comparison with current Minnesota law and federal § 225 to illustrate the exact changes in taxable income calculations.

Bill