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Bill would end Minnesota's conformity with federal safe-harbor for worker classification; debate centers on fraud and business certainty
Summary
House File 1183 would remove state conformity with IRS Section 5.30, eliminating a state-level safe-harbor that some say enables employer misclassification. Proponents argued the change strengthens fraud enforcement and protects revenue; business groups warned it would create divergence and unpredictability. The committee laid the bill over.
Representative Greenmen opened discussion of House File 1183, a bill to stop conforming Minnesota tax law to federal Section 5.30 safe-harbor relief that can shield employers who have relied on prior audits, industry practice or judicial precedent in classifying workers.
Supporters including construction-union counsel Brooke Johnson and policy researchers from North Star Policy Action argued that the safe harbor has enabled widespread misclassification and associated revenue losses. Brooke Johnson cited a Midwest Economic Policy Institute estimate that misclassification in construction reduces worker income and costs tax revenue; testimony from Jake Schweitzer and others estimated statewide revenue losses from misclassification in the hundreds of millions to over $1 billion annually.
Opponents including the Minnesota Business Partnership and the National Federation of Independent Business urged caution, saying Section 5.30 provides stability for employers who make good-faith classification decisions and that removing it would create a separate Minnesota standard, increase compliance risk and discourage investment.
Committee members asked the Department of Revenue for comment; no formal departmental position was offered at the hearing. Representative Greenmen said the provision was unintentionally adopted into state law and that removing it would give state agencies stronger tools to pursue misclassification fraud. The committee moved the author's amendment and laid the bill over for possible inclusion in the 2026 tax omnibus.
