Minnesota legislators recently passed a long overdue tax relief bill. The bill provides nearly $650 million in relief to Minnesota businesses and individuals. A summary of the highlights of the bill are listed below:
Individual tax relief that is effective for year 2017 and beyond
- A non-refundable income tax credit for principal and interest payments on higher education loans
- A non-refundable income tax credit is allowed for contributions to any state’s Section 529 college savings plan, including prepaid tuition plans;
- A non-refundable individual income tax credit of $2,500 for licensed K-12 teachers who complete a master’s degree program in a core content area directly related to their field of licensure.
- The domicile test under the individual income tax’s definition of “resident” is modified so that the location of: the individual’s attorney, certified public accountant, or financial adviser; and the place of business of a financial institution where the individual opened or maintains an account, cannot be considered in determining where the individual intends his or her permanent home to be.
- The following new subtractions from federal taxable income for individuals:
- A taxpayer may deduct up to $1,500 ($3,000 for married joint filers) of contributions to any state’s Section 529 college savings plan or prepaid tuition plan for purposes of computing the Minnesota individual income tax
- Income tax subtraction is allowed for student loan indebtedness discharged by the lender following the borrower’s completion of an income-driven repayment plan and the bill also allows a subtraction on debt discharged through the share teacher shortage loan forgiveness program.
- A subtraction from federal taxable income is allowed for amounts earned on a first-time home buyer account.
- An individual can subtract from federal taxable income an amount of Social Security benefits, up to a maximum amount of $4,500 for married couples filing joint returns, $3,500 for single and head of household filers, and $2,250 for married couples filing separate returns (the subtraction is reduced by 20% of provisional income over a threshold.
- The bill modifies the credit for taxes paid to other states for individuals who have personal or professional income taxed by Wisconsin. The credit would only apply in years in which Minnesota did not have an income tax reciprocity agreement with Wisconsin and essentially provides the same tax treatment to Minnesota residents who work in Wisconsin that they would receive under a reciprocity agreement. Minnesota terminated the reciprocity agreement with Wisconsin after tax year 2009.
- The state dependent care credit in increased to equal the federal credit. The credit would follow the phasedown of the federal credit and then be subject to a state phase-out. The state credit would remain refundable, as under current law.
Estate tax relief that is effective for year 2017 and beyond
The bill increases the amount that is exempt from Minnesota estate taxation from $1.8 million under present law to $3 million in steps, fully effective for estates of decedents dying in 2020 and later. The new annual exclusion amounts are as follows:
2.1 Million for decedents dying in calendar year 2017
2.4 Million for decedents dying in calendar year 2018
2.7 Million for decedents dying in calendar year 2019
3.0 Million for decedents dying in calendar year 2020 or later
There is a corresponding adjustment in dollar limitations on the subtraction for qualified farmland and small business property (the limit equals $5 million reduced by the general exemption)
Beginning farmers get tax relief in two areas:
Effective for years beginning after December 31, 2017 and expiring December 31, 2023:
- A tax credit is allowed to a person who sells or rents agricultural assets to a beginning farmer.
- A corporate franchise tax credit is allowed to a beginning farmer who participates in an approved financial management program
Business provisions in the bill:
The Minnesota research credit becomes more lucrative as the second-tier rate under the credit is increased from 2.5% to 4%.
The required date for employer filing of W-2 forms with the Department is changed from February 28 to January 31.
The due date for partnership returns changed to match the federal due date of March 15 for calendar year partnerships or the 15th day of the third month following the partnerships year end.
Individual income tax is accelerated on installment sales of interests in or assets of Minnesota pass through entities by non-residents or residents who move out of state.
Audit Process may get easier as effective May 31, 2017, S corporation shareholders and partners can request that Department assessments be issued to and paid by the entity after initiation of an audit.