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Composite Income Tax

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Nonresidents who have Minnesota-source income generally must file a state tax return to report and pay tax on their share. See Individual Income Tax Instructions for details.

Nonresidents must meet the following requirements to elect composite income tax:

Are a partner in a partnership, shareholder in an S corporation, or beneficiary of a fiduciary
Are a full-year nonresident
Have no other source of Minnesota income outside of composite income tax or PTE tax from other entities

Partnerships and S corporations are not required to withhold Minnesota income tax for nonresident partners or shareholders who are included in the composite income tax. See Nonresident Withholding for more information.

When calculating income for composite tax, a prior year’s net operating loss is not allowed to reduce current year’s income.

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Installment Gain Sales Subject to Accelerated Gains [+]

For tax years beginning after December 31, 2025, nonresidents who meet other requirements to elect Composite Income Tax may make the election even when there is an installment sale gain subject to acceleration.

The full amount of the gain will be accelerated and included in the calculation. Any income or gains recognized relating to the installment sale that was accelerated for Minnesota purposes will be excluded from income in any future year impacted by the accelerations.

Composite Tax cannot be elected when the gain is elected to be deferred.

Reporting and Paying Composite Tax [+]

When completing the return of a fiduciary, partnership, or S corporation, mark the "Composite income tax" box on the return if any beneficiary, partner, or shareholder included in the return is electing composite tax. Follow the instructions and complete the applicable Minnesota K schedule for each nonresident individual (or certain trusts) electing composite tax to determine the amount due.

Entity Filing Type	Return	Minnesota K Schedule	Instructions
Fiduciary	M2	KF	Instructions for Form M2
Partnership	M3	KPI	Instructions for Form M3
S Corporation	M8	KS	Instructions for Form M8

Net Investment Income Tax [+]

For taxable years beginning after December 31,2023, individuals, estates, and trusts must pay a Minnesota Net Investment Income Tax (NIIT) of 1% on net investment income exceeding $1 million.

The Minnesota NIIT must be reported and paid on either:

Minnesota NIIT cannot be reported and paid as part of a composite income tax election. The composite income tax can still satisfy the partner's or shareholder's tax for the distributive share of the entity's business income.

For Form M1 Filers only

Partners or shareholders electing composite income tax to satisfy their filing requirement must file Schedule NIIT, Net Investment Income Tax, with form M1 if their net investment income exceeds $1 million. In these situations, Form M1 will only report the NIIT.

For more information, visit the Net Investment Income Tax page.