3 tax law changes in Minnesota to know as filing season begins
MINNEAPOLIS — In less than two weeks, Minnesotans can begin filing their income taxes before the April 15 deadline. Last legislative session, lawmakers approved a $3 billion plan that includes tax relief for seniors and low- and middle-income families.
Here's what you need to know before tax filing season starts on Jan. 29.
Rebate checks will be taxed by the IRS
About 2.1 million Minnesotans qualified for a one-time rebate check, a slice of the colossal $17.6 billion budget surplus that lawmakers had to work with during the 2023 session.
The rebates were $260 per individual tax filer, $520 for married couples filing jointly plus an additional $260 per dependent up to three–so a family of five saw up to $1,300 back in their pockets if they met income requirements.
Married couples filing jointly making under $150,000 per year and other tax filers making under $75,000 per year were eligible one-time money back.
When tax time arrives, Minnesotans will owe no state taxes on those payments, but will owe money to the IRS. That's because lawmakers approved the rebates roughly two weeks after the federal COVID emergency expired; before that deadline, the payments would've been held harmless.
That's drawn the ire of Gov. Tim Walz, who has pressed the IRS to reconsider. U.S. Rep. Pete Stauber, the Republican representing Minnesota's Eighth District, has also pressed federal tax officials to find a remedy.
But for now, depending on the size of the rebate, expect to pay as little as $26 or as much as $286 to Uncle Sam.
Child tax credit
What Democrats in charge of the legislature hailed as a"centerpiece" to their tax bill is the child tax credit for low-income families that researchers at Columbia University predict could slash child poverty in Minnesota by one-third.
The credit is $1,750 per child and it starts to phase out for families making more than $35,000 per year.
If Minnesotans make more than that, they might be eligible for a smaller credit depending on their income and how many children they have. There is no limit on the number of qualifying children a family can claim.
The new tax law also made tweaks to the existing working family credit. The changes couple the two credits together and the phase-out timeline is the same. For example, a married couple filing jointly that has three children under 18 would see a maximum credit of $5,600. It's fully phased out for people who make more than $81,666 per year, according to nonpartisan research staff in the Minnesota Legislature.
An estimated 265,000 families will be impacted by the new credit. Minnesotans still can get the credit even if they aren't legally required to file a tax return––the Department of Revenue estimates 10-15% of qualifying families are in this situation. But they must file one in order to claim the credit.
Most recipients of the new child tax credit are eligible for free tax preparation services and can file for free, according to a department spokesman.
The credit would come as part of their refund.
Social security tax cuts
Retired couples earning up to $100,000 and individuals making up to $78,000 will not pay any state taxes on their social security benefits starting with tax year 2023. Half of seniors in the state already didn't pay state taxes on those benefits. DFL tax leads said during session the change will increase that number to 76%.
In 2022, Republican and Democrat leaders in the divided legislature came to an agreement to fully eliminate the state's tax on social security, regardless of income. But that deal unraveled before session ending, punting the issue to the 2023 session.