Purpose

• The bill would change Minnesota’s individual income tax to create an ongoing subtraction for Social Security benefits from taxable income. Taxpayers would be allowed to subtract Social Security benefits under a rule that chooses the larger of two calculated amounts (a simplified subtraction or an alternate subtraction).

How the subtraction works (overview)

• Each taxpayer would get a subtraction equal to the greater of:
  • a simplified subtraction, or
  • an alternate subtraction.
• The simplified subtraction is based on the taxpayer’s Social Security benefits, with reductions based on income (adjusted gross income, AGI) and filing status.
• The alternate subtraction is a separate calculation with set maximum amounts that depend on filing status and are reduced by a portion of “provisional income.”

Key components of the simplified subtraction

• The simplified subtraction equals the amount of taxable Social Security benefits, after some reductions (described below).
• Reductions apply if AGI is above a phaseout threshold:
  • Phaseout thresholds by filing status:
  • Married filing jointly or surviving spouse: $100,000
  • Single or head of household: $78,000
  • Married filing separately: $50,000 (half of the joint threshold)
• For taxpayers not filing separately (i.e., not married filing separately), the simplified subtraction is reduced by 10% for each $4,000 (or fraction) of AGI above the threshold.
• For married taxpayers filing separately, the simplification is reduced by 10% for each $2,000 (or fraction) of AGI above the separate-threshold amount.
• The simplified subtraction is capped at zero on the low end (it cannot be negative).

Key components of the alternate subtraction

• The alternate subtraction equals the lesser of:
  • taxable Social Security benefits, or
  • a maximum subtraction amount (subject to further reductions described below).
• Maximum subtraction amounts by filing status:
  • Married filing jointly and surviving spouse: $5,840, reduced by 20% of provisional income over a certain threshold.
  • Single or head of household: $4,560, reduced by 20% of provisional income over a certain threshold.
  • Married filing separately: half of the joint maximum (i.e., half of $5,840, with its own reduction rules).
• The reductions use “provisional income” as the basis:
  • Provisional income equals modified adjusted gross income (MAGI) plus one-half of taxable Social Security benefits.
  • Social Security benefits are defined as in IRC section 86d1; MAGI is defined as in IRC section 86b2.
• The reductions apply as the provisional income exceeds half of the applicable threshold for each status (specific thresholds are provided in the bill for each category).

Timing and administrative details

• Thresholds and maximum subtraction amounts are subject to annual adjustment by the state commissioner, using the rules in another section (with the commissioner’s adjustments to keep values current).
• All adjusted amounts must be rounded to the nearest $10; if a calculation ends in 5, it rounds up to the next $10.
• The tax year referenced for initial thresholds is the 2023 taxable year.
• The statute also reiterates that “Social Security benefits” have the meaning given in the Internal Revenue Code (IRC), specifically section 86d1, and that provisional income is defined as MAGI plus half of the taxable Social Security benefits.

Definitions and scope

• The bill defines:
  • Social Security benefits, as used in this section, have the same meaning as IRC 86d1.
  • Provisional income, as used for the subtraction reductions, means MAGI (as defined in IRC 86b2) plus one-half of the taxable Social Security benefits received in the year.
• The bill would apply to Minnesota individual income tax and would modify Minnesota Statutes 2025 Supplement, section 290.0132, subdivision 26.

Effective changes and overall impact

• Creates a framework for an ongoing Social Security subtraction, with a choice between a simplified method and an alternate method, designed to reduce taxable income from Social Security benefits for many filers.
• Introduces income-based phaseouts and reductions that depend on filing status, similar to other tax deductions, and ties thresholds to adjustments by the state commissioner.
• Includes specific maximums, reduction rules, and rounding rules that determine the final subtraction available to a taxpayer.

Implementation notes

• The statutory year used for base figures is 2023, with the rule that adjusted maximums and thresholds will be periodically updated by the Commissioner.
• Rounding rules are explicit: to the nearest $10, with 5 rounding up.
• The formulation references and relies on several IRC definitions (86b2 for MAGI, 86d1 for Social Security benefits) to maintain consistency with federal tax terminology.

Relevant Terms - Social Security benefits, subtraction, simplified subtraction, alternate subtraction, phaseout threshold, adjusted gross income (AGI), provisional income, MAGI, Internal Revenue Code (IRC) sections 86b2 and 86d1, joint return, surviving spouse, single, head of household, married filing separately, maximum subtraction, rounding, taxable Social Security benefits, Minnesota Statutes 290.0132, subdivision 26, taxable year 2023.