HF4321

Purpose

• The bill aims to align Minnesota’s individual income tax treatment with the federal rules for dependent care benefits. Specifically, it conformes Minnesota law to the federal expansion of the exclusion from gross income for dependent care assistance programs.

Main Provisions

• Amends Minnesota Statutes 2024, section 290.01, subdivision 31 to redefine Internal Revenue Code for purposes of Minnesota tax law.
• Internal Revenue Code is updated to mean the IRC as amended through May 1, 2023, but with an important addition: it includes section 70404 of Public Law 119-21, which expands the exclusion from gross income for dependent care assistance programs.
• The bill also states that uncodified provisions in federal law that relate to provisions of the Internal Revenue Code that Minnesota law adopts are included.

What changes

• Minnesota will conform its tax treatment to the federal expansion of the dependent care exclusion. This is achieved by incorporating the federal expansion (via Public Law 119-21, Section 70404) into Minnesota’s definition of the Internal Revenue Code for purposes of state income tax.
• The change also ensures that any related uncodified federal provisions connected to the IRC are incorporated into Minnesota law.

Implications and Potential Impact

• Tax treatment for individuals receiving dependent care benefits may be more favorable under Minnesota law, mirroring federal provisions.
• The change provides clearer guidance for taxpayers and the Department of Revenue by aligning state rules with updated federal rules.

Implementation and Definitions

• Clarifies that the Internal Revenue Code, for Minnesota purposes, is the version amended through May 1, 2023, plus the specified federal expansion for dependent care benefits.
• Explicitly includes the expansion of the dependent care exclusion (dependent care assistance programs) from Public Law 119-21, Section 70404, in the Minnesota framework.

Significant Changes to Existing Law

• Replaces or supplements prior state definitions of the Internal Revenue Code with one that includes the federal expansion for dependent care benefits.
• Broadens the set of federal provisions incorporated into Minnesota law through uncodified federal provisions related to the IRC.

Relevant Terms - Internal Revenue Code - Internal Revenue Code as amended through May 1, 2023 - Public Law 119-21 - Section 70404 - expansion of the exclusion from gross income for dependent care assistance programs - dependent care assistance programs - Minnesota Statutes 2024 section 290.01 subdivision 31 - uncodified provisions - conforming to federal exclusion from gross income - dependent care benefits - Minnesota income tax