Tax Credits for Working Families

Minnesota

Earned Income Tax Credit^

Income Tax Rate: Graduated, 5.35-9.85 percent

State EITC: Yes

Refundable: Yes

Enacted: 1991, expanded in 1993 and 1997, and then restructured in 1998

Eligibility: Same as the federal credit

Formula: In 1991, Minnesota implemented the state EITC, called the Working Family Credit (WFC), as 10 percent of the federal EITC, and expanded it to 15 percent in 1993 and 25 percent in 1997. As of 1998, Minnesota restructured the WFC from a percentage of the federal EITC to a percentage of earnings.1 In 2008, the average WFC was approximately 33 percent of the federal EITC.2

For TY 2013, the maximum credit was $124 for eligible taxpayers with no children, $990 for eligible families with one child, and $1,910 for eligible families with two or more children. For TY 2014 the credit value will be increased  and the credit will be conformed to the federal marriage expansion provisions included in ARRA.

Notes/News: In 2013, a number of powerful Minnesota legislators, including the majority leaders in both Houses, introduced a proposal to increase the Earned Income Tax Credit.

On March 14, 2013, the governor released an updated budget. It included a provision to update Minnesota’s state EITC, the Working Family Credit, to reflect recent federal changes affecting married couples. More than 54,000 working families would benefit from this provision.

In February 2014 Senate Tax Reform Division Chair Ann Rest introduced  SF1841, which would conform the state working family tax credit to the federal Earned Income Tax Credit for married couples. The Working Families Credit provision was included in House File 1777, which was passed by the House Tax Committee on March 6, and the Senate Majority Leader expressed support for improving the credit.

On March 21, 2014, the legislature enacted and the governor signed into law House File 1777. House File 1777 section 18 conforms the Working Families Credit to federal improvements reducing marriage penalties starting in tax year 2013, and it increases the maximum credit starting in tax year 2014. These two improvements together represent about a 25 percent increase in the Working Family Credit.

Reports/Materials: Minnesota takes steps to make work pay, Clark Biegler, Minnesota Budget Project, September 2014

The Federal Earned Income Tax Credit and Minnesota Working Family Credit: An Overview, Minnesota House of Representatives Research Department, January 2014

Governor Dayton’s FY 2014-15 Budget Focuses on Tax Reform, Financial Stability and Investments, Minnesota Budget Project, April 2013

Property Tax Relief for Minnesotans, Office of Governor Mark Dayton, March 2013

Minnesota State & Local Taxes, from Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, Institute on Taxation and Economic Policy, January 2013

Minnesota: State and Local Taxes in 2007, Institute on Taxation and Economic Policy, November 2009

The Utilization of Minnesota’s Working Family Credit as Parents Transition from Welfare to Work, Minnesota House of Representatives Research Department, August 2007

Working Family Credit, Bridge to Benefits, Children’s Defense Fund, 2009

Child Tax Credit^

State Credit: No

Notes/News: In 2013, a number of powerful Minnesota legislators, including the majority leaders in both Houses, introduced a proposal to create a Child Tax Credit of $100 for each child, that would start to phase out for families at 300 percent of poverty and be unavailable to families earning more than 400 percent of poverty.

Child and Dependent Care Tax Credit^

State Credit: Yes

Refundable: Yes

Eligibility: Filers must meet federal requirements

One exception is made for a small portion of filers: Filers who meet all federal requirements except for the requirement that you paid someone for child or dependent care may be eligible for the state credit. Such filers must either run a licensed daycare program and care for their own child or adopt a child born during the tax year. For more information on these exceptions, see Child and Dependent Care Credit on the Minnesota Department of Revenue website.

Formula: 100 percent of federal credit, not to exceed certain limitations:4

  • Filers with income up to $18,040 are limited to $720 for one qualifying child.
  • Filers with income up to $18,040 and two or more qualifying children may claim up to $1,440.
  • Filers with income over $18,040, the credit is reduced by $18 for every $350 of income for filers with one qualifying child and $36 for every $350 of income for filers with two or more qualifying children.

The Minnesota Department of Revenue publishes a table in tax form M1CD to help filers calculate the maximum credit based on income and qualifying dependents. To view the table for tax year 2009, click here.

Notes/News: Since the maximum state credit is lower than the maximum percentage of the federal credit, the lowest income Minnesota filers do not benefit fully from the improvements to the federal credit in EGTRRA that took effect TY 2003. The income thresholds are indexed for inflation. The income level that triggers a reduction in the maximum credit is adjusted annually based on the Consumer Price Index.

Reports/Resources: The Minnesota and Federal Dependent Care Tax Credits: An Overview, Minnesota House of Representatives Research Department, January 2014

Property Tax Circuit Breaker^

Circuit Breaker: Yes

Eligibility: Homeowners and renters are both eligible

All homeowners with income below $105,500 are eligible for a credit, known as the Homeowners Property Tax Refund. The maximum credit is $2,580.

All renters with income below $57,170 are eligible for the Renters Property Tax Refund unless they live on property that is exempt from property tax, are a dependent or pay their rent with supplemental assistance monies. The maximum credit is $2,000.

Formula:  For the Homeowners Property Tax Refund, by a formula set forth in the statute, filers are responsible for all property taxes up to a certain percentage of their income and for a percentage of the remaining property taxes, with the Property Tax Refund paying the rest up to the maximum credit allowed.

For the Renters Property Tax Refund, renters calculate their property tax as 17 percent of their rent payments, and are responsible for this property tax up to a percentage of their income and for a percentage of their remaining property taxes, as with the Homeowners Property Tax Refund. The amounts are adjusted for inflation annually, and the statute sets forth separate percentages for renters.

Notes/News: In May 2011, both the House and Senate passed a tax bill that would have reduced the Renters Property Tax Refund by $186 million. This bill would have reduced the percent of rent constituting property taxes for Renters Property Tax Refund claims from 19 percent to 15 percent, with the maximum eligible income decreased to $40,000 for senior/disabled claimants and to $25,000 for non-senior/non-disabled claimants. It also would have increased co-payment percentages for non-senior/non-disabled claimants.

On May 24, the governor vetoed the tax bill, citing the change to the Renters Property Tax Refund first in his reasons for vetoing.

After ending its legislative session without a budget and failing to reach a budget deal in subsequent negotiations between the governor and legislative leaders by the start of the next fiscal year on July 1, the state government was shut down. On July 20, however, the governor signed a new budget into law, ending the nation’s longest state government shutdown in a decade.

The final tax bill cut the Renters Property Tax Refund but increased the refund for homeowners. The credit was reduced by $26 million in FY 2013, or 13 percent. This means an average cut of roughly $80 starting with refunds filed in 2012. (The applications for Renters Property Tax Refunds filed in 2011 are not cut.) This is a substantially smaller reduction than the 46 percent cut included in the legislative tax bill. At the same time, the Homeowners Property Tax Refund is increased by $30 million, starting with applications filed in 2012.

In 2012, the legislature considered further reducing the value of the Renters Property Tax Refund, in order to pay for business property tax cuts. The cuts were included in the House omnibus tax bill (House File 2337), which was passed by the full House on March 21. Details of the cuts are explained here.

The Senate companion bill to reduce property taxes for business offset the cost for the first year, but not by reducing the Renters Property Tax Refund. The House and Senate agreed on a bill to reduce property taxes that did not include a cut to the credit, but the governor vetoed the bill citing, in part, the reduction to last year’s homestead credit and its impact on renters. The House and Senate passed a revised bill, which also didn’t include any change to the Renters Property Tax Refund. The Governor pocket-vetoed this bill, and the 2012 legislative session ended without any change to the Property Tax Refund.

In December 2012, Minnesota’s Property Tax Working Group released its recommendations to the legislature, which included expanding the Property Tax Refund program so that it becomes the primary method of providing homestead benefits tied to ownership or occupancy. The Working Group also recommended reviewing whether the Renters Property Tax Refund would still be necessary after implementing the other recommendations in the report. Both Democratic and Republican legislators expressed a need for property tax relief in the state.

In January, 2013,  Rep. Jim Davnie, DFL-Minneapolis introduce a bill, HF2 , to expand the Renter’s Credit and the existing Homeowner Property Tax Refund, which paid out about $272 million to 363,000 Minnesotans in 2011. Davnie’s plan would make people with higher household incomes eligible for the refunds. It would also increase the amount of the refunds and aim to boost participation by requiring the state Department of Revenue to notify homeowners that they are eligible for refunds. Davnie estimated the cost of the expansion at nearly $100 million.

By mid-February, 50 members of the Minnesota House of Representatives were authors of bills that included increases in the Renters’ Credit. In addition to Rep. Davnie’s bill, there were House File 24 (lead author Representative Joe Mullery), House File 126 (lead author Representative Tim Faust), and House File 173 (lead author Representative Will Morgan). Governor Dayton is also a strong supporter of the Renters’ Credit.

On March 14, Gov. Mark Dayton released an updated budget proposal that includes $18 million in increased funding for the Renters’ Credit. This would provide an average $57 in additional property tax refunds to more than 300,000 Minnesota households, and make up a portion of cuts passed in 2011.

On April 24, the House passed File 677 which included an additional $15.5 million for the state’s Renters’ Credit. On April 29 the Senate passed HF 677 with amendments. The bill included $18 million in improvements to the credit. In May, the governor, House and Senate all agreed to a final conference bill, House File 677, that increased the property tax refund for renters by $15.5 million, restoring more than half of the cuts enacted in 2011. The bill also increased funding for the property tax refund for homeowners – which was spared from the 2011 cuts – by $120 million.

In April, 2014, the Minnesota legislature developed an omnibus tax bill, House File 3167. The House version contained an increase in the Renters’ Credit. The bill would boost the Renters’ Credit by 6 percent for 2014 only: more than 317,000 Minnesota households would see an additional $39 in their refunds. Homeowners would see a 3 percent increase in their property tax refunds.  This provision was part of the House’s Property Tax and Local Division Report, House File 1884. The Senate version did not include this provision. The conference committee retained the provision, the conference report was passed by both houses and the Governor signed the bill into law on May 20, 2014.

Reports/Materials: 2013 tax bill makes progress toward economic and racial justice, Minnesota Budget Project, July 2013

2013 Tax Bill Improves Property Tax Refunds for Renters and Homeowners, Minnesota Budget Project, July 2013

Tax bill makes strides toward tax fairness, investments in our future, Minnesota Budget Bites, May 2013

No Further Cuts to Renters’ Property Tax Refunds Made in 2012 Legislative Session, Minnesota Budget Project, May 2012

Protecting the Renters’ Credit, Minnesota Budget Project, February 2012

Who Receives the Renters’ Credit?, Minnesota Budget Project, February 2012

2010 Renters’ Credit Cuts Felt Across Minnesota, Minnesota Budget Project, February 2012

Final tax bill locks in cuts to cities and counties, makes smaller cut to renters’ property tax refunds, Minnesota Budget Project, July 21, 2011

Tax conference committee considers dramatic cuts to renter property tax refunds, Minnesota Budget Project, May 13, 2011

Minnesota seeing a shift away from state income taxes and towards local property taxes, Minnesota Budget Project, March 16, 2011

Local services, renters’ tax refunds are cut deeply by House plan to cut taxes and balance budget, Minnesota Budget Project, March 14, 2011

Who Receives the Renters’ Credit?, Minnesota Budget Project, September 2010

Cuts to Renters’ Credit hurts those already hurt by tough economy, Minnesota Budget Project, January 2010

How the Benefits of the Renters’ Credit are Distributed Throughout Minnesota, Minnesota Budget Project, April 2009

What is the Renters’ Credit/Circuit Breaker Property Tax Refund?, Minnesota Budget Project, March 2009

1 The Federal Earned Income Tax Credit and the Minnesota Working Family Credit, Minnesota House of Representatives House Research, August 2010

2 State Earned Income Tax Credits: 2008 Legislative Updates, Jason Levitis and Jeremy Koulish, October 2008

3 Tax Year 2007 Minnesota Individual Income Tax Sample- Selected Fields from Minnesota Form M-1, Minnesota Department of Revenue, 2007

4 Minn. Stat. § 290.067

5 Minn. Stat. § 290A.04