AI Generated Summary
Purpose
- This bill changes how Minnesota individual income tax is calculated. It updates the rate schedule (brackets) and the rates that apply to different filing statuses, including married couples filing jointly, unmarried individuals, and heads of household. It also introduces a new method for low-income taxpayers, and it modifies how nonresidents and certain pass-through entities calculate Minnesota tax.
Main Provisions
- Tax rate schedules:
- Four tax brackets with rates that, in order from lowest to highest, include 5.35%, 6.8%, 7.85%, and 9.85%.
- Separate bracket thresholds are provided for:
- Married individuals filing joint returns and surviving spouses.
- Unmarried individuals.
- Unmarried individuals who qualify as head of household.
- Each filing status has its own bracket breakpoints that determine which rate applies to different ranges of taxable net income.
- Alternative calculation method for low income:
- Instead of using the bracket rates, a tax can be computed using commissioner-issued tables for income within a specified bracket range (not exceeding 100 in width). Rounding rules apply (fractions under 50 cents can be ignored, and 50 cents or more may be rounded up to the next dollar).
- Nonresident tax calculation:
- Nonresidents must compute Minnesota tax using the same subdivision rules, then multiply the result by a fraction that uses Minnesota source federal adjusted gross income (FAGI) and various additions and subtractions. The denominator uses FAGI plus/subtractions as defined in the bill, which allocates and assigns qualifying amounts between Minnesota and federal income.
- Special treatment for certain entities and credits:
- If a nonresident is a qualifying owner of a qualifying entity that elects to pay tax, the individual must include specific additions and subtractions attributed to that entity in their Minnesota tax calculation.
- Nonrefundable credits and other related adjustments still apply before applying the fraction for nonresidents.
- References to other tax provisions:
- The bill references additional sections for additions, subtractions, allocations, and other adjustments (e.g., sections 290.0131, 290.0132, 290.0137, 290.081, 289A.08, etc.).
Significant Changes to Existing Law
- Replaces or updates the current 2c portion of Minnesota Statutes 2024 (section 290.06) to implement new bracket thresholds and four-tier rate structure for multiple filing statuses.
- Establishes a standard four-bracket framework with explicit rates for married joint, single, and head-of-household filers.
- Introduces an income-table-based alternative for low-income taxpayers.
- Tightens and clarifies nonresident taxation through a proportional (fraction-based) approach tied to Minnesota-source income and specific adjustments.
- Adds rules for treatment of nonresident owners of eligible entities and how their attributed income affects individual Minnesota tax.
- Maintains reliance on existing nonrefundable credits but integrates them into the new calculation framework.
How Taxpayers Are Affected
- Filing status matters more for bracket placement (joint vs. single vs. head of household).
- The top marginal rate increases to 9.85% for the highest income levels under the new brackets.
- Low-income taxpayers may use a simplified, table-based method instead of the bracket system.
- Nonresidents pay Minnesota tax proportional to their Minnesota-source income, after applying the required additions, subtractions, and credits.
- Income from entities with electing tax status may be allocated to the individual taxpayer for the purposes of Minnesota tax.
Relevant Terms
- Minnesota income tax
- Taxable net income
- Brackets / rate schedule
- 5.35%, 6.8%, 7.85%, 9.85% (rates)
- Married individuals filing joint returns
- Surviving spouses
- Unmarried individuals
- Head of household
- Tables (income brackets of not more than 100)
- Nonrefundable credits
- Nonresident taxation
- Minnesota source federal adjusted gross income (FAGI)
- Additions and subtractions (as defined in applicable sections)
- Allocation and assignability provisions
- Section references: 290.0131, 290.0132, 290.0137, 290.081, 289A.08, etc.
- Qualifying entity / qualifying owner
- Electing entity tax prompt (section 289A.08)
Actions
| Date | Chamber | Where | Type | Name | Committee Name |
|---|---|---|---|---|---|
| February 27, 2025 | Senate | Action | Introduction and first reading | ||
| February 27, 2025 | Senate | Action | Referred to | Taxes |
Citations
[
{
"analysis": {
"added": [
"Introduces different income brackets and rate adjustments for married, unmarried, and head of household filings."
],
"removed": [
"Previous income brackets and rates applicable for tax year 2023."
],
"summary": "This bill modifies the tax rates for individual incomes under section 290.06.",
"modified": [
"Adjusts first-tier rate for individuals from a fixed percentage to detailed income brackets."
]
},
"citation": "290.06"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "References additional income inclusions for non-residents.",
"modified": [
"Includes additions required under this section for income computation adjustments."
]
},
"citation": "290.0131"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "References reduction items for federal adjusted gross income.",
"modified": [
"Subtractions specified under this section considered for both numerator and denominator adjustments in tax computations."
]
},
"citation": "290.0132"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "Applies to allocation and assignability provisions related to tax.",
"modified": [
"Applies allocation and assignability clarification for computation."
]
},
"citation": "290.081"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "Considered for allocation and assignability in tax computations.",
"modified": [
"Provides allocation and sourcing rules referenced in the modifications."
]
},
"citation": "290.17"
},
{
"analysis": {
"added": [],
"removed": [],
"summary": "Involves tax election by qualifying entities.",
"modified": [
"Provision for electing tax computation methods for qualifying entities."
]
},
"citation": "289A.08"
}
]Progress through the legislative process
In Committee