Minnesota imposes a separate Net Investment Income Tax (NIIT) on individuals whose Minnesota net investment income exceeds $1 million. If this tax applies, Schedule NIIT is used to calculate the amount and report it on your 2025 Minnesota income tax return.
What Is the Minnesota Net Investment Income Tax?
The Minnesota NIIT is a 1% tax on Minnesota net investment income over $1 million. It is separate from the federal Net Investment Income Tax, although Minnesota uses information from federal Form 8960, Net Investment Income Tax, as the starting point for its calculation.
What Is Considered Investment Income?
Investment income may include:
- Interest and dividends
- Capital gains
- Rental and royalty income
- Income from passive business activities
- Certain partnership, S corporation, estate, or trust income
- Income from trading financial instruments or commodities
Applicable deductions and modifications connected to investment income may reduce the amount subject to Minnesota NIIT.
What Income Is Excluded?
Minnesota generally starts with federal net investment income, but excludes:
- Net gains from the sale of qualifying Class 2a agricultural property located in Minnesota
- Net interest and mutual fund dividends from qualifying U.S. government bonds and obligations
Schedule NIIT uses these exclusions and related deductions to calculate your Minnesota net investment income.
Who Must Complete Schedule NIIT?
You generally need Schedule NIIT if your Minnesota net investment income exceeds $1 million.
Full-year Minnesota residents calculate the tax using their Minnesota net investment income. Part-year residents and nonresidents calculate the tax and then apply an allocation percentage based on the amount of net investment income assigned to Minnesota.
How Is the Tax Calculated?
For an individual, Schedule NIIT generally calculates the tax as follows:
- Start with investment income from federal Form 8960.
- Subtract qualifying Minnesota exclusions.
- Account for related deductions and modifications.
- Determine Minnesota net investment income.
- Subtract the $1 million threshold.
- Multiply the remaining amount by 1%.
- Apply the Minnesota allocation percentage when required.
The final Minnesota NIIT is reported on Form M1, Line 14a.
Example
Assume a full-year Minnesota resident has $1,300,000 of Minnesota net investment income after all applicable exclusions and deductions.
- Minnesota net investment income: $1,300,000
- Less the $1 million threshold: $1,000,000
- Amount subject to NIIT: $300,000
- Minnesota NIIT at 1%: $3,000
The taxpayer’s Minnesota NIIT would be $3,000, subject to any applicable allocation rules.
Program Entry
- State Section
- Edit Minnesota State Return
- Miscellaneous Forms
- Net Investment Income Tax (Schedule NIIT)
How Do I Enter This in the Program?
Complete the federal sections for both investment income and Form 8960 first. In the Minnesota return, enter any requested information about:
- Total net gain relating to dispositions of Class 2a property located in Minnesota
- Net interest and mutual fund dividends from U.S. bonds
- Total deductions and modifications relating to the Class 2a property
- Portion of MN net investment income allocated to MN
The program will use these entries to complete Schedule NIIT and carry the tax to Form M1.
Pass-Through Entity and Composite Filers
Minnesota composite income tax or pass-through entity tax does not satisfy an individual’s Minnesota NIIT obligation. A partner or shareholder whose regular Minnesota filing requirement was otherwise satisfied through one of these methods may still need to file Form M1 with Schedule NIIT if their net investment income exceeds $1 million. In that situation, Form M1 may be filed only to report the NIIT.
Estimated Tax Payments
Minnesota NIIT is subject to the same estimated-tax requirements as other Minnesota individual income taxes. If you expect to owe NIIT, consider increasing your Minnesota withholding or making estimated payments to reduce the risk of an underpayment penalty.
Important Information
- The Minnesota NIIT threshold is based on net investment income, not total income or federal adjusted gross income.
- The credit for taxes paid to another state cannot be used to offset Minnesota NIIT.
- Schedule NIIT must be included with Form M1 when the tax applies.
- Most taxpayers will not owe this tax because it applies only when Minnesota net investment income exceeds $1 million.
Note: Enter all investment income and Minnesota-specific adjustments accurately. The program will determine whether Schedule NIIT is required and calculate the applicable Minnesota Net Investment Income Tax.