State or Local Government Bond Interest
Interest earned on state or local government bonds is treated differently on your federal and Minnesota income tax returns.
How is interest treated on my federal tax return?
You do not pay federal income tax on state or local government bond interest. You are required to report this interest on your federal return, but only for informational purposes. The interest is not included in your taxable income.
How is interest treated on my Minnesota tax return?
You do not pay Minnesota income tax on state or local government bond interest from bonds within Minnesota. Do not report this interest on your Minnesota return.
You must pay Minnesota tax on state or local government bond interest from bonds outside of Minnesota. You report (add back) this interest as taxable income on your Minnesota return by completing Schedule M1M, Income Additions and Subtractions.
This interest is taxable whether paid directly to you or as flow-through income from a partnership, S corporation, trust, or estate.
For more information, see Minnesota Statute 290.0131, subdivision 2.
What if I received interest from federal bonds?
You must pay federal income tax on federal bond interest, but you do not pay Minnesota income tax. You may qualify for a subtraction on the interest earned. For details, see Net Interest from U.S. Bonds Subtraction.