Minnesota has a separate tax on high levels of investment income. If your Minnesota net investment income exceeds $1 million for tax year 2026, you may need to complete Schedule NIIT and pay the Minnesota Net Investment Income Tax (NIIT). This tax is separate from both your regular Minnesota income tax and the federal Net Investment Income Tax. Minnesota specifically requires Schedule NIIT when applicable.
What Is the Minnesota Net Investment Income Tax?
The Minnesota Net Investment Income Tax is a 1% tax on Minnesota net investment income that exceeds $1 million. The tax applies only to the amount above the $1 million threshold, not your entire investment income.
Minnesota uses information from federal Form 8960, Net Investment Income Tax, as the starting point for calculating the state tax. If Schedule NIIT applies, you must include both Schedule NIIT and federal Form 8960 with your Minnesota return.
What Counts as Investment Income?
Minnesota net investment income generally includes:
- Interest income
- Dividend income
- Capital gains
- Rental income
- Royalty income
- Income from passive business activities
- Certain partnership, S corporation, trust, and estate income
- Certain nonqualified annuity income
What Income Is Excluded?
Minnesota provides specific exclusions when calculating the tax, including:
- Net gains attributable to dispositions of Minnesota Class 2a agricultural property
- Certain interest and mutual fund dividends related to U.S. government obligations
These exclusions, along with related deductions and modifications, may reduce the amount subject to Minnesota NIIT.
Who Must File Schedule NIIT?
You generally must file Schedule NIIT if your Minnesota net investment income exceeds $1 million.
This requirement may apply to:
- Full-year Minnesota residents
- Part-year residents
- Nonresidents with Minnesota investment income
- Partners and shareholders who otherwise satisfy their Minnesota filing requirement through composite income tax or Pass-Through Entity (PTE) tax elections
Even if your regular Minnesota filing obligation is satisfied through composite filing or PTE tax, you may still need to file Form M1 and Schedule NIIT if your net investment income exceeds the threshold.
How Is the Minnesota NIIT Calculated?
The calculation generally follows these steps:
- Start with federal net investment income information from Form 8960.
- Subtract Minnesota-specific exclusions.
- Adjust for related deductions and modifications.
- Determine Minnesota net investment income.
- Subtract the $1 million threshold.
- Multiply the excess by 1%.
- Apply any required Minnesota allocation percentage for part-year residents or nonresidents.
The resulting tax is reported as an additional Minnesota tax on Form M1, line 14a.
Example
Assume a full-year Minnesota resident has:
- Minnesota net investment income: $1,300,000
- Less threshold: $1,000,000
- Taxable excess: $300,000
$300,000 × 1% = $3,000 Minnesota NIIT
The Minnesota Net Investment Income Tax would be $3,000.
Program Entry
To enter Schedule NIIT information in the software:
- Go to State Section
- Three dots to Edit Minnesota State Return
- Select Miscellaneous Forms
- Select Net Investment Income Tax (Schedule NIIT)
What Information Do I Need to Enter?
Complete the federal investment income sections and federal Form 8960 first.
Then enter any Minnesota-specific information requested, including:
- Total net gain from qualifying Minnesota Class 2a agricultural property dispositions
- Net interest and mutual fund dividends from U.S. government obligations
- Related deductions and modifications connected to qualifying Class 2a property
- Minnesota allocation percentage, if applicable
The software will calculate Schedule NIIT and transfer the tax to Form M1.
Special Rules for Composite and PTE Filers
Partners and shareholders using Minnesota composite filing or Pass-Through Entity (PTE) tax elections are not exempt from the Minnesota NIIT. If Schedule NIIT applies, Form M1 may be filed solely to report the net investment income tax. The composite income tax or PTE tax does not satisfy this separate NIIT obligation.
Estimated Tax Payments
Minnesota NIIT is subject to Minnesota estimated tax requirements. If you expect to owe Minnesota NIIT, consider:
- Increasing Minnesota withholding, or
- Making Minnesota estimated tax payments
This may help avoid underpayment penalties.