Does Minnesota Tax Overtime in 2026?
Yes - Minnesota taxes overtime pay in 2026. Minnesota's fixed IRC conformity date predates the OBBBA, so the federal overtime deduction (IRC §225) does not apply for Minnesota state purposes. Workers who claim the federal overtime deduction must add the amount back on their MN Form M1. 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 federal overtime deduction under IRC §225 - which allows workers to deduct up to $12,500 ($25,000 MFJ) in qualifying overtime premium pay - does not automatically apply to Minnesota state income tax because it falls outside the conformity window.
Minnesota's income tax starts from federal gross income, then applies Minnesota-specific additions and subtractions to arrive at Minnesota taxable income. Workers who claim the federal overtime deduction on their IRS return must add back the deducted amount on MN Form M1. This ensures that Minnesota taxes the full overtime premium income at state rates, consistent with pre-OBBBA treatment.
The result is a split outcome: Minnesota workers benefit from the federal overtime deduction on their IRS return (saving 10%–37% on up to $12,500 of overtime premium) but continue to owe Minnesota income tax on the same income at rates of 5.35% to 9.85%. With rates among the highest in the nation, this non-conformity is a significant cost for Minnesota workers who depend on overtime.
Federal Overtime Deduction Quick Reference
| Detail | Value |
|---|---|
| IRC Section | §225 (OBBBA) |
| Maximum deduction | $12,500 overtime ($25,000 MFJ) |
| Deduction type | Above-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 dates | Jan 1, 2025 – Dec 31, 2028 |
| Minnesota treatment | Does 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)
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 full $6,000 in overtime premium pay remains subject to Minnesota income tax. Workers must add back the federal deduction on MN Form M1. 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)
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 full $12,500 in overtime premium pay remains subject to Minnesota income tax. Workers must add back the federal deduction on MN Form M1. 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.
Form M1 Add-Back and How It Works
When you file your Minnesota Form M1, you report your federal adjusted gross income as a starting point. If your federal AGI has already been reduced by the OBBBA overtime deduction, you must add that amount back as a Minnesota addition. This is required for all federal deductions that fall outside Minnesota's IRC conformity date.
The MN DOR publishes a conformity page at revenue.state.mn.us listing all items that require add-backs or subtractions. Workers should consult this page and the Form M1 instructions for the specific line reference when filing their 2026 returns.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- Minnesota Tax Guide - full state tax overview
- Minnesota Paycheck Calculator
- Does Minnesota Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map