State tax cuts affect only a narrow band of Minnesotans this year
The $49 million middle class tax cuts that Gov. Mark Dayton signed into law March 21 will affect only one in 10 Minnesotans this year, but a change to the standard deduction for married couples for next year will affect four times as many of the state’s taxpayers.
Mary Farmer, a general partner with Nisswa Tax Service, said the tax cuts for this year will be retroactively applied to January 2013 and will affect specific people, including teachers, seniors making charitable contributions from their IRAs, some working families, people paying higher education tuition and those paying interest on student loans that are at least five years old.
Farmer said if a taxpayer falls into one of 10 categories of taxpayers eligible for this year’s new cuts and has not yet filed, that taxpayer should wait until the recommended date of April 3.
Don’t fret if you’ve already filed for this year, however; you will still receive the cuts.
“If they’ve already filed, they should do nothing,” Farmer said. “The (Minnesota) Department of Revenue will make the changes, and if they need more information, they will send a letter to you.”
K-12 school teachers or employers may now deduct up to $250 of purchases made with personal money for classroom supplies. Farmer said this is likely to affect most teachers, given that in her experience, it seems most teachers typically spend more than that out-of-pocket.
People older than 70 who make charitable gifts from their IRAs can now exclude up to $100,000 of these distributions, making them tax-free. Farmer said this change likely won’t affect many people, however.
“I would like to say it affects a lot of people. There are several older people that giving is a part of their philosophy,” she said. “Ofttimes, those people are going to itemize anyway, so it really didn’t make a lot of difference. If an older person can make this donation, they usually have a lot of other discretionary money.”
As many as 53,000 Minnesota families will see an average increase of $334 to the Working Family Credit, which, according to the Minnesota Department of Revenue, will more closely follow the Federal Earned Income Tax Credit.
Those who paid post-secondary tuition may qualify for deductions up to $4,000, and those paying student loan interest may be able to deduct up to $2,500, depending on their earnings.
A complete list of all those who qualify for this year’s cuts can be viewed on the Minnesota Department of Revenue’s website.
The big change, Farmer said, will come next year, when Minnesota increases the standard deduction for married couples to equal double an individual’s deduction. Previously, married couples in the state effectively took a penalty for filing a joint standard deduction. The state deduction was $10,150, while an individual could claim $6,100 in deductions. The new tax code will allow married couples to claim $12,200, an increase of $2,050.
“It affects a lot of people who are not itemizing,” Farmer said. “It is a big change, and it is a lot of money that will be refunded to people.”
Many of the changes in Minnesota’s tax code bring it in line with federal tax code, including the change to standard deductions. The federal American Taxpayer Relief Act of 2012, enacted in January 2013, permanently increases the standard deduction for married couples to be twice the allowed amount for single filers.
The tax relief bill Dayton signed totaled $508 million, including the repeal of numerous business taxes that were widely criticized by state legislators. Those repealed included taxes on electronic, farm and commercial equipment repair, warehousing and storage services and telecommunications equipment.
The law also includes another $3 million in tax credits available to startup businesses and entrepreneurs known as the Angel Investor Tax Credit. Those credits are set to increase to $15 million in both 2015 and 2016. According to the governor’s website, a recent report showed this tax credit has “created 500 new jobs and spurred $100 million of new private investment in Minnesota’s economy.”
Chelsey Perkins can be reached at firstname.lastname@example.org. Follow her at facebook.com/PEJChelsey and on Twitter @PEJ_Chelsey.