State Income Tax Bills in Minnesota to Increase

Published On: 20th February 2014

From the internet

If your employer is helping you pay for an adoption or your education, or you had to short sell your home, or you are still paying on student loans that are over five years old, it is fair to say that you will see a higher state income tax bill in the future.

These are just some of the tax breaks that will no longer be a part of Minnesota’s tax code, although they are still there under the federal tax law.

For example, if your home was recently foreclosed on, the state may make you pay a tax. This is due to the fact that so many individuals receive some kind of income when their lender sells the home for less than what is owed on the mortgage. The state will tax this “income,” but the federal government doesn’t. The federal government doesn’t count it as income.

So why is this?

Well, this is something that was debated during the last legislative session and it actually put Democrat against Democrat. Overall, this was a debate that stayed under the radar.

The federal tax code usually gives taxpayers special treatment on things like employer tuition assistance. Every year, the exemptions and write-offs are renewed by Congress. In the beginning of 2013, the federal government decided to make these exemptions permanent.

Usually, Minnesota goes right along with federal law, but the legislation didn’t do this in 2013. One legislator said that she wanted to ensure Minnesotans that they wouldn’t have to pay unexpected taxes for the latest tax year, so the house bill included language that would eliminate the differences between federal and state taxes.

However, there are many who are upset because they said the tax breaks are worth a lot of money. The state says that keeping the old policies in place would have cost the state around $300 million in a two year period. One proposal was to adjust the state’s income tax brackets so more revenue could be collected. The plan would have resulted in an overall tax cut.

There was resistance from the Senate and from the governor in regards to changing tax brackets, so the provisions were dropped before the latest tax bill went into effect.

Another legislator said that some of the tax breaks have been left out because it takes money to pay for conforming to the federal tax code. He stated that there would have been even more tax increases if the state decided on conformity.

But it turns out that the Legislature is raising taxes for certain individuals. This has been done through omission instead of legislation.

It is believed that conformity will be taken up again in the next legislative session, especially since it is always an issue.

One resident in Faribault is among those affected by the state not confirming with the federal income tax code. In 2013, she had to short sell her home. Because of the Mortgage Forgiveness Debt Relief Act of 2007, the canceled debt was not considered income on her federal tax return. Because Minnesota is not honoring the Federal Debt Relief Act for 2013 income tax, the sale of the home is considered income and the mother of five will now have to pay $6,600 in state income tax this year. Being on a fixed budget, this is something that she states she cannot do. This is just one example of how lack of conformity can affect Minnesota taxpayers.