Find a calculator
Tax Year 2026Updated July 13, 2026

Does Minnesota Tax Overtime in 2026?

Yes - Minnesota taxes overtime pay in 2026. Minnesota's fixed IRC conformity date predates the OBBBA, and the 2026 legislature (HF 2438) deliberately excluded individual OBBBA deductions from the conformity update. The OBBBA overtime deduction (IRC §225) is a below-the-line deduction - it reduces federal taxable income, not federal AGI. Minnesota starts from federal AGI, so the deduction never enters Minnesota's calculation. No Form M1 addback is required. Overtime premium pay remains fully subject to Minnesota's graduated income tax rates of 5.35%, 6.80%, 7.85%, and 9.85%.

How Minnesota's Overtime Tax Treatment Works

Minnesota uses a fixed IRC conformity date that was set before the OBBBA was enacted in 2025. The 2026 legislature advanced HF 2438, which updated IRC conformity for business provisions, but deliberately excluded individual OBBBA deductions - including the overtime deduction under IRC §225. Per MN DOR revenue analysis: "The federal deduction does not affect adjusted gross income, the starting point for calculating Minnesota taxable income."

This statement from the MN DOR points to the key structural issue: the OBBBA overtime deduction is a below-the-line deduction. It reduces federal taxable income (Form 1040, Line 15) - not federal adjusted gross income (Form 1040, Line 11). Minnesota starts its income tax calculation from federal AGI. Because the OBBBA overtime deduction does not affect federal AGI, it never appears in Minnesota's starting point at all.

The practical result is the same as non-conformity - overtime premium pay is fully taxable in Minnesota - but the mechanism is different from what an "addback" would imply. No addback on Form M1 is required because there is nothing to reverse: the deduction simply was not part of the figure Minnesota starts from. Minnesota workers benefit from the federal overtime deduction on their IRS return (saving 10%-37% on up to $12,500) but owe Minnesota income tax on the same overtime income at rates of 5.35% to 9.85%.

Federal Overtime Deduction Quick Reference

DetailValue
IRC Section§225 (OBBBA)
Maximum deduction$12,500 overtime ($25,000 MFJ)
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
Minnesota treatmentDoes not conform
What qualifies?Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and Minnesota Treatment

Example 1: Warehouse worker (single filer, $48,000 income, $6,000 overtime premium)

Federal return:
Qualifying overtime premium: $6,000
Overtime deduction claimed: $6,000 (capped at $12,500)
Estimated federal tax savings: $720.00

Minnesota return:
Minnesota does not recognize the federal overtime deduction. The OBBBA overtime deduction is below-the-line - it reduces federal taxable income, not federal AGI. Because Minnesota starts from federal AGI, the deduction never enters Minnesota's calculation. No M1 addback is required because the deduction never reduced the starting point. The full $6,000 in overtime premium pay remains subject to Minnesota income tax. At this income level, overtime falls in Minnesota's 5.35% bracket ($0-$33,310). Estimated MN tax on overtime: approximately $321.

Example 2: Healthcare worker (single filer, $80,000 income, $12,500 overtime premium - federal cap reached)

Federal return:
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00

Minnesota return:
Minnesota does not recognize the federal overtime deduction. The OBBBA overtime deduction is below-the-line - it reduces federal taxable income, not federal AGI. Because Minnesota starts from federal AGI, the deduction never enters Minnesota's calculation. No M1 addback is required because the deduction never reduced the starting point. The full $12,500 in overtime premium pay remains subject to Minnesota income tax. At this income level, overtime falls in Minnesota's 6.80% bracket ($33,310-$109,430). Estimated MN tax on overtime: approximately $850.

Minnesota-Specific Notes on High Rates and Overtime

Minnesota's graduated brackets mean the state tax impact of overtime depends on total income. For a warehouse worker earning $48,000, overtime premium falls in the 5.35% first bracket ($0-$33,310 of MN taxable income) - adding approximately $321 in state tax on $6,000 of overtime premium. For a healthcare worker at $80,000, overtime pushes into the 6.80% second bracket ($33,310-$109,430), costing approximately $850 in state tax on $12,500 of overtime premium.

Even at the lowest bracket, Minnesota's 5.35% rate is higher than many states' top rates, making overtime particularly expensive for Minnesota workers compared to counterparts in lower-tax states.

Why No Form M1 Addback Is Required

Earlier descriptions of Minnesota's treatment of the OBBBA overtime deduction suggested that workers must "add back" the federal deduction on Form M1. This was mechanically incorrect. The OBBBA overtime deduction reduces federal taxable income, not federal AGI. Minnesota starts from federal AGI - so the deduction was never part of Minnesota's starting number in the first place. There is nothing to add back.

The MN DOR's own revenue analysis confirms this: "The federal deduction does not affect adjusted gross income, the starting point for calculating Minnesota taxable income." The 2026 legislature (HF 2438) advanced conformity for business provisions but deliberately excluded individual OBBBA deductions, confirming that no state-level benefit was intended.

The MN DOR's conformity page at revenue.state.mn.us provides updated guidance on OBBBA treatment.

Related Tools

Frequently Asked Questions

Does Minnesota conform to the federal overtime deduction under the OBBBA?
No. Minnesota's fixed IRC conformity date predates the OBBBA (enacted 2025). The federal overtime deduction (IRC §225) does not apply for Minnesota state purposes. The 2026 legislature (HF 2438) advanced IRC conformity for business provisions but deliberately excluded individual OBBBA deductions, including the overtime deduction. Per MN DOR revenue analysis: 'The federal deduction does not affect adjusted gross income, the starting point for calculating Minnesota taxable income.'
Do I need to add back the federal overtime deduction on my Minnesota return?
No - no addback is required, and the previous understanding that an addback was needed was mechanically incorrect. The OBBBA overtime deduction (IRC §225) is a below-the-line deduction: it reduces federal taxable income, not federal AGI. Minnesota starts from federal AGI. Because the overtime deduction never reduces federal AGI, it never enters Minnesota's starting point - so there is nothing to add back. The effect is the same (overtime income is fully taxable in Minnesota), but the mechanism is that the deduction simply doesn't appear in MN's calculation, not that it gets reversed by an addback.
What Minnesota income tax rates apply to overtime pay?
Minnesota uses four graduated brackets for TY2026: 5.35% on the first $33,310, 6.80% on $33,310–$109,430, 7.85% on $109,430–$203,150, and 9.85% above $203,150 (single filers). The rate on your overtime income depends on your total Minnesota taxable income. Most hourly workers' overtime falls in the 5.35% or 6.80% brackets.
Does Minnesota have any state-level overtime tax relief?
No. Minnesota has not enacted a state-level overtime deduction, exclusion, or credit. Unlike some states that have created their own overtime provisions, Minnesota relies entirely on its IRC conformity framework - and the current conformity date predates the OBBBA.
Could Minnesota adopt the federal overtime deduction in the future?
The 2026 legislature (HF 2438) specifically excluded individual OBBBA deductions from the conformity update, reflecting a deliberate policy choice. A future legislature could revisit this, but the 2026 exclusion signals that there is no near-term path to Minnesota conformity on overtime. Check revenue.state.mn.us for updates after each legislative session.
Only the overtime premium is deductible federally - what does that mean for my MN return?
Under IRC §225, only the premium portion of overtime pay qualifies for the federal deduction - not total overtime wages. For time-and-a-half, only the 0.5x above the regular rate is deductible. For Minnesota purposes, this distinction is moot: since the OBBBA overtime deduction is below-the-line and Minnesota starts from federal AGI, the deduction never enters MN's calculation regardless of its size. The entire overtime amount (regular rate portion and premium) is taxable at MN rates, just as it was before the OBBBA.