Minnesota Nonconformity and the One Big Beautiful Bill Act

On July 4, 2025, Congress enacted the One Big Beautiful Bill Act (OBBA), a sweeping tax package that extends and modifies several provisions of the Tax Cuts and Jobs Act (TCJA) and introduces new tax measures for individuals and businesses. However, because Minnesota conforms to the Internal Revenue Code (IRC) as of May 1, 2023, the state does not automatically adopt the OBBBA changes. Unless the Minnesota Legislature updates its conformity date, taxpayers will continue to calculate Minnesota taxable income based on pre-OBBBA federal law, resulting in potential mismatches between 2025 state and federal return filings. Even if conformity is updated, Minnesota may selectively “decouple” from specific OBBBA provisions.

Key Areas of Impact
Among the OBBBA’s major changes are the replacement of GILTI with net CFC tested income (NCTI) and FDII with foreign-derived deduction eligible income (FDDEI), a permanent 100% bonus depreciation, increased Section 179 expensing limits, and a renewed ability to immediately deduct domestic R&D expenses. Minnesota’s pre-OBBBA conformity means taxpayers must continue to apply prior rules for these items, often requiring addbacks or adjustments on Minnesota returns. For individuals, new federal deductions for auto loan interest, tip income, and overtime pay will not be recognized at the state level under current law.

Minnesota’s elective pass-through entity tax (PTET) remains in effect through tax year 2025 but will expire thereafter without legislative renewal. With OBBBA now enacted into law, taxpayers should anticipate greater complexity in reconciling federal and state taxable income, particularly if Minnesota’s conformity date is not updated during the next legislative session. Businesses and individuals alike should monitor legislative developments to prepare for potential adjustments and nonconformity challenges in the upcoming filing seasons. We will continue to update you as new information is released on this topic, as this area will be a focus as we work with you on tax planning and projections for tax year 2025.

 

IRS Provides Penalty Relief for 2025 Tip and Overtime Reporting Requirements

The Treasury Department and IRS have announced penalty relief for employers and other payors for tax year 2025 in connection with new tip and overtime reporting rules introduced by the One Big Beautiful Bill Act (OBBBA). The act created new deductions for individuals who receive qualified tips and qualified overtime pay, effective for tax years beginning after December 31, 2024. To support these deductions, employers and payors are required to separately report certain information—including cash tips, the employee’s occupation, and qualified overtime compensation—on information returns such as Forms W-2 and 1099.

Recognizing that many employers and payors may not yet have systems in place to capture and report this new data, and that the IRS will not update 2025 forms to include the new fields, the agency is treating 2025 as a transition year. Under Notice 2025-62, the IRS will not assess penalties under IRC § 6721 or 6722 for failing to separately report tip and overtime details, provided that information returns are otherwise complete and accurate. The total amounts for tips and overtime must still be included in aggregate payment totals. Although penalties will not apply for 2025, the IRS encourages employers and payors to voluntarily share the separate tip and overtime information with their employees or payees—such as through an online portal, supplemental statement, or Box 14 of Form W-2—to help individuals claim the new deductions. Additional IRS guidance for taxpayers on how to report these deductions on their 2025 returns is expected in the coming months.

 

Minnesota Updates Minimum Wage for 2026

Effective January 1, 2026, Minnesota’s minimum-wage rate will be adjusted for inflation to $11.41 an hour for all employers in the state. The 90-day training wage for workers under age 20 will increase to $9.31.

For more information: https://bit.ly/4hKwg6K 

 

Minnesota Updates Sales Tax Guidance for Digital Products

The Minnesota Department of Revenue has released a new Digital Products Industry Guide replacing Fact Sheet No. 177, clarifying how sales and use tax applies to digital goods. Taxable digital products include digital audio and audiovisual works (such as music, movies, and audiobooks), e-books, online games, e-greeting cards, and digital codes that provide access to these items. Prewritten computer software remains taxable as tangible personal property, regardless of how it is delivered. In contrast, digital products such as news articles, photos, charts, logos, and educational materials used in post-secondary courses are not taxable.

The guide also explains how to source sales of digital products based on the purchaser’s location, outlines rules for multiple points of use and bundled transactions, and provides guidance on use tax reporting. Non-fungible tokens (NFTs) are taxable when tied to taxable goods or services, while virtual currency transactions are only taxable when used to buy taxable items. Taxpayers selling or purchasing digital products in Minnesota should review the updated guidance to ensure proper tax treatment.

For more information: https://www.revenue.state.mn.us/digital-products