The omnibus tax bill signed into law by Governor Dayton provides new tax credits and subtractions, and makes numerous changes to Minnesota income, estate, sales, property, and other taxes. Some of these changes are effective retroactively and some prospectively, but most of the income tax provisions are effective beginning in 2017.  Highlights of the new law include:  

Residency Factors – The new law removes from consideration the location of a nonresident taxpayer’s attorney, CPA, financial advisor, or financial institution in determining the taxpayer’s state of domicile. Click here to see more.

Contributions to 529 Plans – Contributions to 529 plans are now eligible for either a subtraction from income or a tax credit for qualifying taxpayers. The subtraction is limited to $3,000 for joint filers and $1,500 for all others. The tax credit is equal to 50% of contributions, up to a maximum $500 credit. The credit is gradually phased out as income exceeds $75,000, but there is no income limit on the subtraction.

Social Security Benefits – The new law provides a subtraction for a portion of Social Security benefits. The maximum subtraction is $4,500 for married joint filers, $3,500 for single and head-of-household filers, and $2,250 for married taxpayers filing separate returns. The subtraction is phased out as income exceeds certain levels. 

K-12 Teacher Master’s Degree – A nonrefundable tax credit of up to $2,500 is available for K-12 teachers who begin a master’s degree program after June 30, 2017. The program must be directly related to their field of licensure. The credit is allowed in the year the degree program is completed. 

Student Loans – The new law provides a tax credit of up to $500 for interest paid on qualifying student loans, subject to a number of limitations. The new law also provides a subtraction for cancellation-of-debt income arising from forgiveness of student loan debt after a qualifying income-driven repayment plan. 

Installment Sales of Pass-through Entities – Under the new law, nonresident owners (and those becoming nonresidents during the year) of interests in Minnesota partnerships or S corporations must either report the full amount of gain on installment sales of their pass-through interests in the year of sale, or agree to file Minnesota tax returns in the years that the gain is recognized for Federal purposes. 

The new tax law makes a number of other changes and clarifications, including changes to the Minnesota estate tax exemption amount and several sales tax rules. The new law also authorizes the Commissioner of Revenue to enter into a new income tax reciprocity agreement with Wisconsin.