Minnesota Governor Mark Dayton signed a “tax conformity” bill last week in order to align MN tax law with changes in federal tax law. The legislation was approved January 13, 2017 retroactively conforming the state’s corporate franchise and personal income tax to most federal changes enacted since December 31, 2014, for tax year 2015 and following years. No changes were made to bonus and Sec 179 expensing amounts.
Will these changes affect you? Here are the most notable changes:
- Deduction for up to $4,000 of qualified tuition and related expenses.
- Exclusion for discharge of indebtedness income on principal residence.
- Itemized deduction for mortgage insurance premiums on a principal residence.
- Deduction in adjusted gross income of up to $250 for classroom or professional development expenses paid by K-12 grade educators.
- Qualified charitable distribution exclusion from IRA for up to $100,000 for taxpayers age 70.5 or older.
- Increased income levels at which the working family credit begins to phase out for married filing joint filers. The amount is increased by the same amount allowed at the federal level.
- Updates the reference to the IRC for purposes of determining household income for the property tax refund.
- Updates other references to federal adjusted gross income in the IRC that are used for calculating alternative minimum tax and withholding on wages. This definition is also used as the starting point for calculating household income for purposes of the K-12 and dependent care credits.
Claiming Refunds as a result of tax conformity
- The Department of Revenue will review 2015 tax returns. If a taxpayer qualifies for a new deduction or exclusion, one of three things will happen:
- The Department will make the necessary changes to the return and will send a letter explaining changes and issuing a refund.
- The Department will request more information and will use that information to make changes to the return. The Department will then send a letter explaining changes and issuing a refund.
- If the Department cannot make changes to the return, taxpayers will be notified that they need to file an amended return.
- Taxpayers should NOT amend returns unless notified by the Department via a letter.
- No taxpayers will owe additional tax as a result of the conformity changes.
Also New for 2016
Beginning with tax year 2016, Minnesota will allow taxpayers to subtract certain military retirement pay (including pensions) when calculating Minnesota taxable income and Minnesota alternative minimum taxable income.
- Retirement pay must be taxable on the federal return
- Pay for service in the active component of the military
- For retirement pay for service in the reserve component
- For survivor benefit plan payments
Questions about these or other MN State Tax issues? Christianson can help! Contact us today at 320-235-5937 or toll-free at 888-852-5937.