If you're preparing a Minnesota return, you may be asked:
"Are you filing this return for Net Investment Income Tax (NIIT) requirements?"
This question applies to taxpayers whose only Minnesota filing obligation is to report and pay Minnesota's Net Investment Income Tax. Minnesota requires certain individuals, estates, and trusts with high levels of investment income to file a return even when they have otherwise satisfied their regular Minnesota filing requirements.
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 taxpayers with qualifying investment income over that threshold.
Net investment income may include:
- Interest income
- Dividend income
- Capital gains
- Rental income
- Royalty income
- Income from passive partnerships or S corporations
- Certain nonqualified annuity income
Minnesota specifically requires taxpayers with more than $1 million of net investment income to complete Schedule NIIT and include federal Form 8960 with their Minnesota return.
Why Am I Being Asked This Question?
Some taxpayers do not need to file a regular Minnesota individual income tax return because their Minnesota tax obligation has already been satisfied through:
- Minnesota composite income tax
- Minnesota Pass-Through Entity (PTE) tax elections
However, if those taxpayers have Minnesota net investment income exceeding $1,000,000, they must still file a Minnesota return to report and pay Minnesota NIIT. In that situation, Form M1 is filed solely for NIIT purposes.
When Should I Answer "Yes"?
Answer Yes if all of the following apply:
- Your Minnesota filing requirement exists only because of Minnesota NIIT.
- You are filing Form M1 solely to report and pay NIIT.
- Your regular Minnesota income tax filing requirement has already been satisfied through a composite return or a PTE tax election.
- You must file Schedule NIIT because your Minnesota net investment income exceeds $1,000,000.
When filing solely for NIIT purposes, Minnesota instructs taxpayers to:
- Complete only the identifying information and federal information fields on Form M1.
- Skip Form M1 lines 1 through 12.
- Report the NIIT from Schedule NIIT on Form M1 line 14a.
- Check the box indicating the return is being filed for NIIT requirements.
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 requiring a Minnesota return.
- The return is not being filed solely for Minnesota NIIT purposes.
How Is the Tax Calculated?
For most individuals:
- Determine Minnesota net investment income.
- Subtract the $1,000,000 threshold.
- Multiply the excess amount by 1%.
- Apply any applicable Minnesota-source allocation for nonresidents or part-year residents.
Example:
- Minnesota net investment income: $1,250,000
- Less threshold: $1,000,000
- Taxable excess: $250,000
- Minnesota NIIT: $2,500
How Do I Complete Schedule NIIT in the Program?
Schedule NIIT is generally created from information entered on federal Form 8960, Net Investment Income Tax. Minnesota requires a copy of federal Form 8960 when Schedule NIIT is filed.
Program Navigation
- State Section
- Three dots to Edit Minnesota return
- Miscellaneous Forms
- Net Investment Income Tax (Schedule NIIT)