HF453

Purpose

To change how income is defined for Minnesota’s property tax refund program. The bill expands and tweaks what counts as income and what reduces income for calculating refunds, with the aim of altering the amount residents may receive.

Main Provisions

• Definition of Income

  • Income is defined as the sum of:
  • Federal adjusted gross income (AGI) as defined by the Internal Revenue Code, plus
  • A list of specific items added to AGI to form “Income” if those items were not already included in AGI. This list includes:
    • Nontaxable income
    • Passive activity losses (to the extent not disallowed by §469)
    • Passive activity loss carryovers
    • Discharge of qualified farm indebtedness for solvent individuals (excluded from gross income under §108(g))
    • Cash public assistance and relief
    • Certain pension or annuity payments (including Social Security, SSI, veterans benefits) funded in part or entirely by the claimant/spouse and excluded from AGI in the years those payments were made
    • Interest from federal/state government or instruments of government
    • Workers' compensation
    • Nontaxable strike benefits
    • Disability income or sick pay (disability-related payments)
    • Lump-sum distributions under §402e3 (as amended)
    • Contributions to retirement accounts (e.g., traditional IRA, SEP, 401(k)) up to the limit of the retirement base amount for the claimant and spouse
    • Distributions from traditional or Roth retirement accounts
    • Nontaxable scholarship or fellowship grants
    • Alimony received (to the extent not included in the recipient’s income)
    • Deductions or benefits such as the deduction for student tuition under §222 and the deduction for certain elementary/secondary school teacher expenses under §62A2D
    • The exemption-related adjustments for dependents (see below)
  • In case of a fiscal-year filer, AGI is defined by the fiscal year ending in the calendar year, and AGI is not reduced by net operating loss carrybacks/forwards or capital loss carrybacks/forwards for that year.

• Income Exclusions

  • Income does not include:
  • Amounts excluded under IRC §§101(a) and 102 (personal exemptions, etc.)
  • Pension/annuity exclusively funded by the claimant or spouse that were not excluded from AGI in the years paid
  • Amounts contributed to retirement accounts (traditional or Roth) up to the retirement base amount (but not exceeding it)
  • Surplus food or other relief in kind from a government agency
  • Relief granted under the chapter
  • Child support payments
  • Restitution payments received by eligible individuals (and related exempt interest)
  • Alimony paid
  • Veterans disability compensation
  • Distributions from Roth-style retirement accounts or plans to the extent not included in AGI

• Deductions/Exemptions

  • Amounts may be subtracted from income for dependents:
  • First dependent: exemption amount × 1.4
  • Second dependent: exemption amount × 1.3
  • Third dependent: exemption amount × 1.2
  • Fourth dependent: exemption amount × 1.1
  • Fifth dependent: exemption amount × 1.0
  • An additional subtraction if the claimant or spouse had a disability or reached age 65 by December 31 of the year for which taxes are levied
  • Definitions:
  • Exemption amount: the exemption amount under a specified Minnesota statute for the taxable year
  • Retirement base amount: the deductible amount for the claimant and spouse under §219(b)(5A) of the Internal Revenue Code, adjusted for inflation
  • Traditional or Roth retirement accounts/plans: 401, 403, 408, 408A, 457 plans
  • Roth-style retirement accounts/plans: accounts under §408A or designated Roth contributions within a 401/403/457 plan

Significant Changes to Existing Law

• Substantively redefines what counts as “Income” for the property tax refund program, layering many non-AGI items into the calculation and tying some items to specific Internal Revenue Code provisions.
• Introduces a formal mechanism for subtracting dependent-related amounts (dependent exemptions) with multipliers (1.4, 1.3, 1.2, 1.1, 1.0) and an extra if the claimant or spouse is disabled or 65+.
• Establishes new definitions related to retirement accounts (traditional vs. Roth) and introduces the concept of a “retirement base amount” to cap or limit certain adjustments.
• Specifies how AGI is determined for taxpayers filing on a fiscal year basis, aligning it with the calendar-year ending period, and clarifies that certain loss carryovers and tax attributes cannot reduce AGI in that context.
• Creates explicit exclusions and allowances for various income types (e.g., alimony received, certain scholarships, veteran/veteran disability payments) to be either included or excluded from the income calculation, affecting refunds.

Potential Implications (Summary)

• The changes could alter property tax refund amounts for many filers, depending on how their income sources are categorized under the new definitions.
• Families with multiple dependents may see larger adjustments due to the multiplier-based exemptions.
• Taxpayers with significant retirement savings activity (IRAs, 401(k)s, Roth accounts) will see new rules around how distributions and contributions affect the income calculation.
• The bill requires careful taxpayer planning to understand how specific income sources will impact refund eligibility.

Relevant Terms

• federal adjusted gross income (AGI)
• income (as defined by the bill)
• nontaxable income
• passive activity loss
• Internal Revenue Code (IRC) sections 469, 108g, 101, 102, 220, 223, 222
• discharge of qualified farm indebtedness
• cash public assistance and relief
• Social Security Act benefits, Supplemental Security Income (SSI), veterans benefits
• interest from government/state instruments
• workers' compensation
• nontaxable strike benefits
• disability income / sick pay
• lump-sum distribution (IRC §402e3)
• retirement accounts (traditional, Roth; sections 401, 403, 408, 408A, 457)
• Roth-style retirement accounts
• scholarship or fellowship grants
• alimony (received and paid)
• tuition deduction (IRC §222)
• teacher deduction (IRC §62A2D)
• dependent exemption amounts and exemptions
• exemption amount (Minnesota statute)
• retirement base amount (IRC §219(b)(5A) basis, inflation-adjusted)
• traditional vs. Roth retirement accounts
• fiscal-year AGI definition
• multipliers for dependents (1.4, 1.3, 1.2, 1.1, 1.0)