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Bill

SF 587

Paid gratuities to employees tax subtraction provision

2025-2026 Regular Session Introduced by Rich Draheim and 4 co-sponsors

Minnesota bill creates income tax deduction for employers who pay tips directly to employees, reducing state tax revenue without identified offsets.

Referred to Taxes
#revenuedepartment #taxation-income #wagesandsalaries
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Bill Summary · SF 587

Legislative bill overview

SF 587 creates a tax subtraction for Minnesota employers who provide paid gratuities (tips) directly to employees. The bill allows employers to deduct these employer-paid gratuities from their state income tax liability, effectively subsidizing tip payments through the tax code.

Why is this important

This bill addresses compensation structures in service industries by incentivizing employers to supplement employee tips through wages rather than relying solely on customer gratuities. It has direct fiscal implications for state tax revenue and could influence wage practices in restaurants, hospitality, and other service sectors.

Potential points of contention

  • Revenue impact: The tax subtraction reduces state income tax collections with no specified offset or revenue replacement mechanism
  • Equity concerns: Benefits primarily employers in specific industries (hospitality, food service) while potentially disadvantaging other business sectors
  • Implementation complexity: Defining what qualifies as "paid gratuities," distinguishing them from regular wages, and preventing abuse requires clear regulatory guidance
  • Effectiveness debate: Unclear whether tax incentives will actually increase employee compensation or primarily benefit employer bottom lines

Compiled from official sources — confirm details with the bill’s official record.

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