Federal individual income tax deduction for qualified overtime compensation adopted.

Minnesota House Bill 3524 (HF3524) proposes a state income tax subtraction for "qualified overtime compensation," aligning Minnesota's tax treatment with a federal deduction established under Public Law 119-21, known as the "One Big Beautiful Bill Act." This federal law allows taxpayers to deduct a portion of their overtime pay from federal taxable income for tax years 2025 through 2028. Specifically, the federal deduction permits up to $12,500 for single filers and $25,000 for married joint filers, with phaseouts at higher income levels. HF3524 seeks to extend this benefit beyond 2028, even if the federal deduction expires as currently scheduled. The subtraction would apply to taxable years beginning after December 31, 2028, and is designed to reduce Minnesota taxable income for eligible workers receiving qualified overtime pay. ([house.mn.gov](https://www.house.mn.gov/comm/docs/VfuKf9I5bku0VWEZ_xRD0w.pdf?utm_source=openai))

The introduction of HF3524 has been met with support from various stakeholders who view it as a means to provide tax relief to workers earning overtime pay. By aligning Minnesota's tax code with the federal deduction, the bill is seen as a step toward reducing the tax burden on middle-class workers and promoting fairness in the tax system. Advocates argue that the extension of this benefit beyond 2028 would offer continued support to workers who rely on overtime income. ([house.mn.gov](https://www.house.mn.gov/comm/docs/VfuKf9I5bku0VWEZ_xRD0w.pdf?utm_source=openai))

Critics of HF3524 express concerns about the potential impact on state revenue. The Minnesota Department of Revenue estimates that the subtraction could reduce general fund revenue by approximately $180,100 in fiscal year 2026, with the impact increasing in subsequent years. Some argue that this reduction could lead to budget shortfalls, potentially affecting funding for essential public services. Additionally, there are apprehensions about the fairness of extending a federal tax benefit beyond its original expiration date, questioning whether it aligns with the state's fiscal priorities. ([revenue.state.mn.us](https://www.revenue.state.mn.us/sites/default/files/2025-10/federal-update-overtime-subtraction.pdf?utm_source=openai))