What’s new in Minnesota for 2026: the federal law that never arrived, and the state bill that did

The big news for Minnesota filers in 2026 is what did not happen. The federal deductions for tips, overtime pay, the $6,000 senior deduction and car-loan interest are all taken after adjusted gross income, and Minnesota builds its return from adjusted gross income with its own deductions. So those four never reach Form M1; tips and overtime are taxed by Minnesota at the full graduated rates in 2026, and the Legislature chose to leave it that way. What did happen is quieter: the brackets, standard deduction and dependent exemption rose 2.369% with inflation, the Child Tax Credit was indexed for the first time to $1,800 a child, and the omnibus tax bill signed May 27, 2026 moved Minnesota’s federal conformity date to May 1, 2026, adopting the business side of the 2025 federal law while decoupling from a short list of its individual provisions. Two of those decouplings cost ordinary households money: a 1% floor on charitable deductions and a dependent care credit frozen at the old federal formula.

For the full set of 2026 numbers see Minnesota figures at a glance; for how the return is built see How Minnesota income tax works.

The indexed figures

The Minnesota Department of Revenue published the 2026 inflation adjustments on December 16, 2025. Everything moved 2.369%. The 5.35% bracket now runs to $48,700 of taxable income on a joint return and $33,310 single; the 6.8% bracket to $193,480 and $109,430; the 7.85% bracket to $337,930 and $203,150; and 9.85% applies above that. The Minnesota standard deduction is $30,600 married filing jointly, $23,000 head of household and $15,300 single or married filing separately, plus $1,600 per spouse or $2,000 for a single or head-of-household filer who is 65 or older or blind. The dependent exemption is $5,300 per dependent. The 2027 figures come in December 2026.

Tips, overtime, seniors and car loans: why nothing changed, and why that is the story

The federal law of July 2025 created four new deductions for individuals: up to $25,000 of qualified tips, up to $12,500 ($25,000 joint) of overtime premium pay, a $6,000 deduction for each filer 65 or older, and up to $10,000 of interest on a loan for a new American-assembled car. Every one of them is a deduction from adjusted gross income, not a deduction in arriving at it. The Minnesota return starts on line 1 of Form M1 with federal adjusted gross income, then allows only Minnesota’s own standard deduction or Schedule M1SA itemized deductions, Minnesota’s own dependent exemption, and the additions and subtractions on Schedule M1M. There is no line on the 2026 Schedule M1M for tips, overtime, seniors or car-loan interest. The income is in AGI, and it stays in.

Bills to add Minnesota subtractions for tips and overtime, HF 3525 and HF 3524, were heard in the House Taxes Committee in March 2026 and laid over. They were not in the omnibus tax bill. The overtime subtraction alone was estimated to cost $365.9 million. So a Minnesota server, nurse or electrician who sees tips and overtime disappear from the federal return in 2026 will see them taxed in full by Minnesota. No add-back is needed; the income never left.

The $6,000 federal senior deduction works the same way. Minnesota’s own age break is the extra standard deduction, $1,600 per spouse on a joint return or $2,000 single, which has existed for years and did not change. See Minnesota for retirees.

The 2026 tax bill: HF 2438

The omnibus tax bill, HF 2438, was signed May 27, 2026 and is 2026 Minnesota Laws chapter 128. Its central act for individuals was to move Minnesota’s conformity date for the Internal Revenue Code from its previous spot to May 1, 2026, retroactive to the federal effective dates. That brought in most of the 2025 federal law automatically. Then the bill listed what Minnesota would not follow.

The draft 2026 Form M1 instructions confirm the first two individual items above: the charitable floor (“must exceed 1% of their contribution base, generally adjusted gross income”) and the add-back for employer student-loan assistance and educational benefits above $5,250.

The 1% charitable floor

For 2026, charitable contributions count on the Minnesota return only to the extent they exceed 1% of adjusted gross income. The federal floor is 0.5%; Minnesota doubled it. The floor applies on Schedule M1SA for people who itemize for Minnesota, and to the nonitemizer subtraction on Schedule M1M line 13, which has always been 50% of gifts over $500. The Department of Revenue’s own estimate was about 598,100 returns paying an average of $54 more. A couple with $120,000 of AGI who give $6,000 and itemize for Minnesota deduct $4,800, not $6,000; at their 6.8% marginal rate the floor costs $82. Because Minnesota lets you itemize for the state while taking the federal standard deduction, the Schedule M1SA decision is worth running both ways, and the new floor changes the answer for some households. How the floor interacts with the $500 threshold on the nonitemizer line is a question the final instructions should settle (verify).

Child and dependent care credit, frozen

The 2025 federal law raised the dependent care credit percentage and its income bands. Minnesota did not follow. For 2026 the Schedule M1CD credit uses the pre-2025 federal formula: 35% of up to $3,000 of expenses for one child or $6,000 for two or more, sliding to 20% above $43,000 of income, so at most $1,050 or $2,100, then reduced by 5% of AGI over $65,610 and gone at $77,610 (one) or $89,610 (two or more). It stays refundable, which is the part that matters for a young family paying for day care. See Credits and breaks for Minnesota families.

The Child Tax Credit: $1,800, indexed

The Minnesota Child Tax Credit was $1,750 per child for 2023, 2024 and 2025. Minnesota Statutes 290.0661 indexes it beginning with tax year 2026, rounding to the nearest $60, and the Department’s inflation-adjusted amounts table gives $1,800 per qualifying child under 18. The Department’s web page and flyers still show $1,750 because they describe 2025. It is refundable, has no cap on the number of children, and is open to ITIN filers. It is a low-income credit: the child credit and the Working Family Credit together phase out at 12% of income above $38,770 on a joint return or $32,680 for other filers, so one child is fully gone at about $56,065 joint. The Working Family Credit maximum for a worker without children is $388 for 2026. Advance payments continue: a filer who claimed the credit may elect to receive half of next year’s expected credit in three payments, and for 2026 the Department added optional text-message updates when payments go out. Anyone who took advance payments must file a 2026 return even with no income.

Renters and homeowners

The Renter’s Credit on Schedule M1RENT, on the income tax return since 2024, has a 2026 maximum of $2,780 for household income under $79,330. Homeowners still file the separate Form M1PR by August 15 for the Homestead Credit Refund. HF 2438 increased that refund one time by 14.88%, but only for property taxes payable in 2026, which is the 2025 M1PR filed by August 17, 2026. The 2026 M1PR, filed in 2027, gets no boost. Its income limit is $147,110 on the draft instructions; the maximum refund is to come (the 2025 maximum was $3,480, with a $142,490 income limit).

Smaller items

Pass-through entity tax. The election that lets an S corporation or partnership pay Minnesota tax at the entity level, so the owners can deduct it federally, was revived for tax years 2026 and 2027, retroactive to January 1, 2026. There is no penalty for a missed first-quarter 2026 estimate if it was paid with the second. Owners of pass-through businesses should ask whether the election pays for them under the $40,000 federal SALT cap; see The SALT cap.

New subtraction. Nursing Facility Workforce Wage Supplement payments are subtracted for 2026 only, along with certain long-term services and supports workforce grants.

State free file, but not yet. HF 2438 orders the Department to build a state direct e-file system with no income limit for tax years beginning after December 31, 2026. That is the 2027 return, filed in 2028. For the 2026 return the Department lists free electronic filing offers from software vendors, each with its own income and age limits, and free in-person preparation through volunteer sites. See Minnesota calendar and forms.

Estate tax. The exclusion stays at $3,000,000 for 2026 deaths, not indexed and not portable between spouses, with the qualified small business and farm deduction of up to $2,000,000 and an interest rate of 7%. Rates run 13% to 16%.

The ballot and the session

One statewide constitutional amendment was on the November 3, 2026 ballot: it changes the Permanent School Fund’s “perpetual and inviolate” standard so that about 4.5% of the fund can be distributed to school districts each year. It is not a tax measure and does not touch anyone’s return. The “fifth tier” income tax bracket and the wealth tax discussed during the 2026 session were not enacted and were not on the ballot. Minnesota has no voter initiative process, so no tax change can reach the ballot without the Legislature putting it there. The governor’s office and the Legislature were on the ballot, so 2027 tax policy is open until the 2027 session; 2026 is settled.