Minnesota Tax Law Update
By Mahoney
There were several changes to Minnesota’s tax code that were added to the legislative session in May 2023. Here are the significant tax law updates to keep in mind for your tax planning strategies and filing your 2023 individual tax return.
Social Security Income Subtraction
There is an expansion of the old Minnesota tax law relating to Social Security income. The new law simplifies the income subtraction, and more people are now eligible. Taxpayers with adjusted gross income below $100,000 for married filing joint returns or $78,000 for single or head of household returns are eligible for the subtraction. This subtraction phases out by 10% for each $4,000 of adjusted gross income over these thresholds. Married taxpayers filing separately have a phaseout of 10% for each $2,000 of adjusted gross income over $50,000.
This change will benefit some taxpayers because they will pay less to the State of Minnesota in income taxes. However, there are many other items that come into play when determining Minnesota taxable income, not just Social Security income. This means that not everyone will be able to take advantage of this law change.
Public Pension Income Subtraction
There is another section of the revised Minnesota tax code related to retirement income. This is the Public Pension Income Subtraction. People who receive public pension income include retired employees from the State of Minnesota, the Minnesota State Patrol, correctional employees, judges and legislators. Recipients or their survivors may qualify for a subtraction on their 2023 Minnesota tax return if all of these apply:
- They earned public pension income
- They did not earn credit toward Social Security benefits on this income
- They are ineligible to receive Social Security benefits for the same service
The subtraction amount is limited to:
- $25,000 for a married taxpayer filing a joint return or a surviving spouse
- $12,500 for all other filers
The subtraction phases out at these income thresholds, reducing it by 10% for each $2,000 of adjusted gross income exceeding the threshold:
- $100,000 for a married taxpayer filing a joint return or a surviving spouse
- $78,000 for a single or head of household taxpayer
Cancellation of Education Loans
Minnesota residents who have discharged education loans that are not taxable federally do not have to pay Minnesota tax on the discharged loans. However, there is a change in Minnesota’s tax law for situations where individuals have qualified education loans discharged that are taxable federally. Minnesota residents may be able to subtract the discharged loan amount from their federal taxable income on their Minnesota return. This will happen if the education loan is discharged after completing a federal income-based repayment plan. Here is a list of the types of discharged student loans that may qualify for this special tax treatment:
- Minnesota Teacher Shortage Loan Repayment Program
- Income-based repayment plans
- Income-contingent repayment plans
- Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE) programs
Contact Mahoney with Questions
At Mahoney, we are happy to answer any questions you may have about Minnesota taxes and tax planning strategies. Reach out to Associate Director and QuickBooks ProAdvisor Peggy Prall, and she can assist you in this matter. Don’t miss our other tax articles for more tips.
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