Minnesota Sees new Higher Income Tax Tier

Published On: 22nd June 2013

From The Internet

The legislative session is over and the dust has settled. Looking at the accomplishments, there was an expansion of civil liberties through Marriage Equality, Minnesota will gain $2.1 billion in revenue, critical education investments are going to be made, and there is property tax relief coming for homeowners.

Also on the agenda was the income tax tier, which is now higher.

Individuals and families who are among the top 2% of earners in the state of Minnesota will pay more taxes. This includes married joint filers earning a taxable income over $250,000, single filers making at least $150,000 and heads of households making $200,000. The marginal rate increase is moving from 7.85 percent to 9.85 percent.

But the key term in this is “taxable income.” You may have noticed on past tax returns that your “taxable income” is different than your gross income.

According to the Minnesota Department of Revenue, a family that owns a home and earns $250,000 per year in income has a gross income of $321,000. However, those families may be able to take advantage of over $70,000 in deductions from their state income tax. These deductions reduce taxable income, which may mean the family’s taxable income will actually be less than $250,000.

The second key term is “marginal tax.” These tax rates only apply to the income that is earned in each tax bracket. This means that Minnesota residents pay the same tax rates as they move up the income ladder. The top 2% of earners in the state only pay the new rate on the dollars earned above the established thresholds. Just think of how someone pays the same tax rate as everyone else, but they have more tax removed from their paycheck because they earned more.

As for the family making $250,000, the tax deal is not too bad at all. For every $10,000 made over $250,000, they will pay $200 more in tax on their 2013 tax returns. The result is the state investing in all day Kindergarten for almost all children in Minnesota, property tax relief for many Minnesotans, community reinvestment, and a budget that is balanced. The consensus is that this progressive tax policy is fairer than what it could have been.

Resource: http://www.tcdailyplanet.net/blog/jkolnick/unpacking-income-tax