When preparing your Minnesota return, you may be asked whether you are filing the return to meet Minnesota Net Investment Income Tax (NIIT) requirements. This question applies to certain taxpayers whose Minnesota filing obligation is limited to reporting and paying NIIT.
What Is Minnesota Net Investment Income Tax?
Minnesota imposes a 1% Net Investment Income Tax (NIIT) on individuals, estates, and trusts with Minnesota net investment income exceeding $1,000,000. The tax applies to tax years beginning after December 31, 2023.
Net investment income may include items such as:
- Interest income
- Dividend income
- Capital gains
- Passive rental income
- Income from passive partnership or S corporation activities
- Certain royalty income
Program Entry
- State Section
- Edit the Minnesota return using the three dots
- Basic Information
“Are You Filing This Return for Net Investment Income Tax (NIIT) Requirements”?
Why Am I Being Asked This Question?
Some taxpayers may otherwise not be required to file a Minnesota individual income tax return but must file a Minnesota return to report and pay NIIT.
For example, partners or shareholders who elected Minnesota composite income tax or pass-through entity (PTE) tax may have satisfied their regular Minnesota income tax filing requirement, but if their net investment income exceeds $1 million, they must still file Schedule NIIT with Form M1 to report the Minnesota NIIT. In these situations, the return may be filed solely to report NIIT.
When Should I Answer "Yes"?
Answer Yes if:
- Your Minnesota filing requirement exists solely because of the Minnesota Net Investment Income Tax.
- You are filing Form M1 only to report and pay NIIT.
- You are otherwise not filing to report regular Minnesota income tax but must file Schedule NIIT.
When Should I Answer "No"?
Answer No if:
- You are filing a regular Minnesota income tax return.
- You have wages, self-employment income, retirement income, or other taxable income that requires a Minnesota return.
- The return is not being filed solely for Minnesota NIIT purposes.
How Is the Tax Calculated?
For individuals, Minnesota NIIT is generally calculated as:
- First, determine Minnesota net investment income.
- Subtract $1,000,000.
- Multiply the excess by 1%.
- Apply any required Minnesota allocation for part-year residents or nonresidents.
How Do I Complete Schedule NIIT?
Schedule NIIT is automatically created from Federal 8960 (Net Investment Income Tax). If the Federal Form 8960 is not present, then the MN Schedule NIIT will be removed automatically. To make adjustments, navigate to:
- State Section
- Edit the Minnesota return using the three dots
- Miscellaneous Forms
- Net Investment Income Tax (Schedule NIIT)
Important
- Minnesota NIIT is reported on Schedule NIIT and flows to Form M1.
- Nonresidents may be subject to Minnesota NIIT on Minnesota-source investment income.
- The credit for taxes paid to another state cannot be used to offset Minnesota NIIT.
- Minnesota NIIT is subject to estimated tax payment requirements and underpayment penalties may apply if sufficient tax is not paid during the year.