Governor Mark Dayton signed an omnibus tax bill on May 30, 2017, that included several changes to Minnesota tax laws we’d like to make you aware of. We will be incorporating these changes as we complete your tax projections or provide you with tax planning recommendations.
Following is a summary of various highlights of the bill:
Estate Tax Changes
- The bill increases the amount that is exempt from estate taxation in 2017 from $1.8 million under current law to $2.1 million. The bill will also increase the exemption amount in annual steps to $2.4 million, $2.7 million, and finally $3 million per person for decedents dying in 2020 and later years.
It is important to note that while Governor Dayton signed the tax bill, he is seeking to re-negotiate some of the provisions included in the bill including the change to the estate tax exemption. A lawsuit between the Legislative and Executive branches of Minnesota government is currently pending which will determine an outcome.
Income Tax Changes
- A new subtraction will be allowed for Social Security benefits of up to $4,500 for married joint filers and $3,500 for single/head of household filers. The subtraction is phased out as income exceeds thresholds of $77,000 for married joint filers and $60,200 for single/head of household filers.
- A new tax benefit in the form of a tax credit or subtraction will be allowed for contributions to any state’s Section 529 plan. The credit equals 50% of contributions up to a maximum credit of $500 which is phased out if income exceeds $160,000 for married joint filers or $100,000 for single/head of household filers. If the credit is phased out, a subtraction of up to $3,000 for married joint filers or $1,500 for single/head of household filers would be available.
- A new tax credit of up to $500 is allowed for principal and interest payments on student loans. The credit is subject to various limitations based on the amount of loan payments as compared to earned income.
- A new subtraction is allowed for amounts earned on designated first-time homebuyer accounts.
- A new tax credit is allowed to the seller or lessor of assets to a beginning farmer. To qualify the transaction must be approved and certified by the Rural Finance Authority. A beginning farmer is also eligible for a tax credit for participating in an approved financial management program.
- The domicile test for determining residency status in Minnesota is modified so that the location of a taxpayer’s attorney, CPA, financial advisor, or financial institutions cannot be considered by the Minnesota Department of Revenue or a court in determining residency status.
- A new tax credit of up to $2,500 is allowed for licensed K-12 teachers who attain a master’s degree within their licensure field.
- The dependent care credit is increased to equal the federal credit while being subject to a state specific phase-out.
Feel free to reach out to us if you would like to discuss how any of these changes may impact your personal situation.