HF4647

Purpose

To change how income is calculated for Minnesota’s homestead credit refund program. The bill would exclude certain items from income when determining refunds, specifically scholarships, dependent flexible spending accounts, and health flexible spending accounts. The goal is to adjust the income measure used to calculate property tax refunds and potentially increase some households’ refunds.

What the bill does (Main provisions)

• Changes to how income is defined for the homestead refund:
  • The bill revises Minnesota Statutes 2025 Supplement, section 290A.03, subdivision 3, to specify what counts as income and what does not for the homestead credit refund calculation.
  • It keeps federal adjusted gross income (FAGI) as the starting point but adds and subtracts various items to determine the total income used for the refund calculation.
  • A wide range of items can be added to income (to the extent not already included in FAGI), such as non-taxable income, certain losses, various forms of government and private compensation, pensions and annuities, Social Security and veterans benefits, interest from government or state sources, workers’ compensation, and other specific types of income and deductions.
• Exclusions from income (the key change):
  • The bill explicitly excludes certain items from income for the refund calculation:
  • Scholarships or fellowship grants that are nontaxable
  • Amounts related to dependent care assistance
  • Contributions to health flexible spending arrangements (health FSAs) that are excluded from gross income under cafeteria plan rules
  • It also lists other exclusions that may apply under the Internal Revenue Code, such as certain IRC section 101(a) and 102 amounts, and other specific types of income that are not counted toward the homestead refund calculation.
• Clarifications and definitions:
  • Defines terms used in the income calculation, including:
  • Exemption amount (used for dependent deductions)
  • Retirement base amount (a deductible amount for retirement-related planning)
  • What counts as a traditional or Roth-style retirement account (401, 403, 408, 408A, 457 plans)
  • Establishes rules for how many dependents can be claimed and how much the exemption amounts are multiplied per dependent (with scaled multipliers for up to five dependents) and an adjustment if the claimant or spouse has a disability or is age 65 or older.
  • Notes how the income is calculated for fiscal year taxpayers (federal adjusted gross income is used as the basis, with adjustments for the fiscal year).
• Practical effects:
  • By excluding scholarships, dependent care assistance, and health FSA contributions from income, households using these benefits would generally have lower counted income for the purposes of the homestead refund.
  • This could increase the amount of the homestead credit refund for those households or qualify more households for the refund.

How it changes current law

• Replaces or tightens the way income is computed for the homestead refund by explicitly excluding certain commonly received benefits (scholarships, dependent care assistance, health FSA contributions) from income.
• Maintains a comprehensive list of items that can be added to income, while clearly carving out the specified exclusions.
• Adds explicit definitions for key terms used in the calculation (exemption amount, retirement base amount, and what constitutes a traditional or Roth-style retirement account) to guide the calculation.
• Introduces a structured framework for dependent exemptions and associated multipliers, affecting how much is subtracted for dependents when calculating refund eligibility.

Notable terms and concepts (highlights)

• Homestead credit refund program
• Income definition for refund calculation
• Federal adjusted gross income (FAGI)
• Non-taxable income
• Passive activity loss (IRC 469)
• Discharge of qualified farm indebtedness (IRC 108g)
• Pensions, Social Security, SSI, veterans benefits
• Dependent care assistance (IRC 129)
• Health flexible spending arrangement (health FSA) (IRC 125)
• Nontaxable scholarship or fellowship grants
• Exemption amount (per dependent)
• Retirement base amount (IRC 219b5A reference)
• Traditional or Roth retirement accounts (IRC 401, 403, 408, 408A, 457)
• Dependent exemptions (multipliers for up to five dependents)
• Related exclusions (IRC sections 101(a) and 102, alimony, child support, etc.)

Relevant Terms - Homestead credit refund - Minnesota Statutes 290A.03 - Federal adjusted gross income (FAGI) - Nontaxable scholarship/fellowship grants - Dependent care assistance (IRC 129) - Health flexible spending arrangement (health FSA) (IRC 125) - Exemption amount - Retirement base amount - Traditional or Roth retirement accounts (401k, 403b, 408, 408A, 457) - Dependent exemptions and multiplier rules - Discharge of indebtedness (IRC) - Passive activity loss (IRC 469) - Pensions, Social Security, SSI, veterans benefits - Alimony and child support treatment in income calculations

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