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Tax Year 2026Updated July 13, 2026

Does Minnesota Tax Tips in 2026?

Yes - Minnesota taxes tip income in 2026. Minnesota's fixed IRC conformity date predates the OBBBA, so the federal tips deduction (IRC §224) does not apply for Minnesota state purposes. Workers who claim the federal tips deduction must add the amount back on their MN Form M1. Tip income remains fully subject to Minnesota's graduated income tax rates of 5.35%, 6.80%, 7.85%, and 9.85%.

How Minnesota's Tips Tax Treatment Works

Minnesota uses a fixed IRC conformity date that was set before the OBBBA was enacted in 2025. Because the OBBBA falls outside Minnesota's conformity window, its provisions - including the tips deduction under IRC §224 - do not automatically apply to Minnesota state income tax.

Minnesota calculates state income tax starting from federal gross income, then applies Minnesota-specific additions and subtractions to arrive at Minnesota taxable income. When a worker claims the federal tips deduction on their IRS return (reducing federal AGI by up to $25,000), that deduction does not carry over to Minnesota. Instead, the worker must add back the deducted amount on MN Form M1, ensuring that Minnesota taxes the full tip income.

This creates a split outcome for Minnesota tipped workers: they save on their federal return (at rates of 10%–37% on up to $25,000 in tips) but continue to owe Minnesota income tax on the same tip income at rates of 5.35% to 9.85%. Minnesota's rates are among the highest in the nation, making the lack of state conformity particularly costly for tipped workers in the state.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
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

Worked Examples Comparing Federal and Minnesota Treatment

Example 1: Restaurant server (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Minnesota return:
Minnesota does not recognize the federal tips deduction. The full $15,000 in tip income remains subject to Minnesota income tax. Workers must add back the federal deduction on MN Form M1. At this income level, tip income falls in Minnesota's 5.35% bracket ($0–$33,310). Estimated MN tax on tip income: approximately $802.50.

Example 2: Bartender (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Minnesota return:
Minnesota does not recognize the federal tips deduction. The full $25,000 in tip income remains subject to Minnesota income tax. Workers must add back the federal deduction on MN Form M1. At this income level, tip income falls in Minnesota's 6.80% bracket ($33,310–$109,430). Estimated MN tax on tip income: approximately $1,700.

Minnesota-Specific Notes on High Rates and No Conformity

Minnesota has some of the highest marginal income tax rates in the country, reaching 9.85% for income above $203,150 (single filers, TY2026). Even the lowest bracket rate of 5.35% exceeds many states' top rates. This means the absence of OBBBA conformity is particularly impactful for Minnesota tipped workers compared to states with lower rates.

For a server earning $40,000 with $15,000 in tips, the Minnesota tax on tip income alone is approximately $802.50 (at the 5.35% first bracket rate). For a bartender at $70,000 with $25,000 in tips, the Minnesota tax on tip income jumps to approximately $1,700 (at the 6.80% second bracket rate). These amounts are owed regardless of any federal tips deduction claimed.

Form M1 Add-Back Requirement

Workers who claim the federal tips deduction must add the amount back as a Minnesota addition on Form M1. This is because Minnesota's income tax starting point is federal gross income with MN-specific modifications. Deductions created by laws enacted after Minnesota's IRC conformity date must be reversed on the state return. The add-back ensures that Minnesota taxes the full amount of tip income consistent with pre-OBBBA rules.

The MN DOR's conformity page at revenue.state.mn.us lists all federal provisions that require Minnesota add-backs or subtractions.

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Frequently Asked Questions

Does Minnesota conform to the federal tips deduction under the OBBBA?
No. Minnesota's fixed IRC conformity date predates the OBBBA (enacted 2025). The federal tips deduction (IRC §224) does not apply for Minnesota state purposes. The Minnesota Legislature has not enacted legislation adopting the OBBBA tips provision or updating the conformity date.
Do I need to add back the federal tips deduction on my Minnesota return?
Yes. If you claim the federal tips deduction on your federal return (reducing federal AGI), you must add back that deducted amount on your Minnesota Form M1. Minnesota uses federal gross income as its starting point with Minnesota-specific additions and subtractions. The OBBBA tips deduction must be added back because it falls outside Minnesota's IRC conformity date.
What Minnesota income tax rates apply to tip income?
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). Even the lowest Minnesota bracket (5.35%) is higher than many states' top rates.
Has Minnesota considered legislation to adopt the tips deduction?
The Minnesota Legislature meets annually and could adopt OBBBA conformity or specific deductions in a future session. As of August 2026, no legislation has been enacted to adopt the federal tips deduction. Workers should check revenue.state.mn.us for updates after each legislative session.
Does Minnesota tax Social Security benefits?
No. Minnesota fully exempts Social Security benefits from state income tax (effective tax year 2024 under SF 2677). However, this exemption does not extend to tip income, which remains fully taxable at Minnesota rates.
How does Minnesota's standard deduction affect tip income taxation?
Minnesota provides a standard deduction of $15,300 for single filers (TY2026), which applies to all income - not specifically to tips. This deduction is typically exhausted by regular wage income before tip income is considered. Minnesota's standard deduction is set independently and does not follow the federal standard deduction amount.