MINNEAPOLIS — With less than a fortnight remaining until the commencement of income tax filing season on January 29, Minnesotans are gearing up for the approaching April 15 deadline. In the preceding legislative session, a comprehensive $3 billion plan gained approval from lawmakers, offering tax relief targeted at seniors and low- to middle-income families.
Here’s a comprehensive guide to prepare you for the upcoming tax filing season.
Rebate checks face IRS taxation
Approximately 2.1 million Minnesotans found themselves eligible for a one-time rebate check, a portion of the substantial $17.6 billion budget surplus allocated during the 2023 legislative session.
Individual tax filers received $260, while married couples filing jointly were entitled to $520, with an additional $260 allocated per dependent, up to three. This meant that a family of five could receive up to $1,300 if they met the stipulated income requirements.
Married couples filing jointly with an annual income below $150,000, along with other tax filers earning less than $75,000 annually, qualified for this one-time financial boost.
Despite no state taxes being levied on these payments during tax time, Minnesotans will owe money to the IRS. This is due to the approval of the rebates approximately two weeks after the expiration of the federal COVID emergency. If approved before that deadline, the payments would have been exempt from federal taxation.
This situation has elicited disapproval from Governor Tim Walz, who has urged the IRS to reconsider. U.S. Representative Pete Stauber, a Republican representing Minnesota’s Eighth District, has also lobbied federal tax officials to address this issue. For now, depending on the rebate size, individuals can expect to pay anywhere from $26 to $286 to the federal government.
Child tax credit highlights
A centerpiece of the Democrats’ tax bill, the child tax credit for low-income families, has been lauded as a potential solution to reducing child poverty in Minnesota by one-third, according to Columbia University researchers.
Set at $1,750 per child, this credit begins to phase out for families earning more than $35,000 annually. Those with higher incomes may still qualify for a reduced credit based on their income and the number of children they have. Notably, there is no limit on the number of qualifying children a family can claim.
The new tax law also introduces modifications to the existing working family credit, combining the two credits and maintaining the same phase-out timeline. For instance, a married couple filing jointly with three children under 18 could see a maximum credit of $5,600. The credit is fully phased out for individuals earning more than $81,666 per year, as per nonpartisan research staff in the Minnesota Legislature.
Approximately 265,000 families are expected to be affected by this new credit. Even those not legally obligated to file a tax return can still claim the credit, as estimated by the Department of Revenue, with 10-15% of qualifying families falling into this category. However, filing a tax return is a prerequisite for claiming the credit.
Most recipients of the new child tax credit can access free tax preparation services and file at no cost, according to a department spokesman. The credit is integrated into their refund.
Social security tax cuts for retirees
Retired couples earning up to $100,000 and individuals with incomes up to $78,000 will no longer be subject to state taxes on their social security benefits, beginning with the 2023 tax year. This change is anticipated to increase the number of seniors not paying state taxes on these benefits from 50% to 76%, according to DFL tax leads.
In 2022, leaders from both Republican and Democrat camps in the divided legislature initially reached an agreement to entirely eliminate the state’s tax on social security, irrespective of income. However, this deal unraveled before the session concluded, deferring the resolution of the issue to the 2023 session.