Minnesota Tax Legislation: Four changes in 2023 that could affect your tax planning strategy.
During the 2023 legislative session, lawmakers in Minnesota passed a $3 billion tax bill. The bill includes several significant provisions – some you’ve probably heard of, while others stayed under the radar. Some that affect you, while others are not as relevant. As we enter the final quarter of 2023, it’s important to review these changes and decide which, if any, might be meaningful for your financial plan.
Whether you are saving for future education costs, considering retirement, or simply trying to minimize your lifetime tax bill, understanding the ever-changing landscape of tax law is critical to your financial well-being. In this blog post, we share the tax updates we believe are most relevant, so that you can have an informed conversation with your financial planner about your unique tax planning situation.
Tax Rebate Recap
A significant portion of the bill's budget was allocated to one-time rebate checks for both single and joint filers. These rebates were mostly sent out in August and September, with possibly a few stragglers remaining this month. Taxpayers did not need to apply to receive a rebate. However, they must have been Minnesota residents for part or all of 2021 and have filed a Minnesota Individual Income Tax return or a Homestead Credit Refund for Homeowners and Renter's Property Tax Refund by December 31, 2022.
Based on those returns, individuals who earned up to $75,000 in tax year 2021 received $260, while couples who earned up to $150,000 received $520. Additionally, taxpayers with up to three children may have received an extra $260 per child. If you believe you are eligible for the rebate, but have not received it by the end of October 2023, call 651-565-6595 or email firstname.lastname@example.org to check on your individual situation.
Social Security Tax Exemption
Under the new law, starting in tax year 2023, Minnesotans with AGI (adjusted gross income) below $100,000 for couples that file married joint returns, or $78,000 for single or head of household returns, will be exempt from paying state taxes on their Social Security Income. Furthermore, individuals in this income range who receive a public pension will be able to subtract up to $25,000 from their taxable income. This could present a significant tax savings for many retirees. The new exemption provides an incentive to try to manage taxable income, to the extent possible, for those with incomes near the AGI limits.
Top Tax Bracket Increase
Prior to the 2023 legislation, the highest 2023 income tax rate in Minnesota was 9.85% for married joint filers with taxable incomes of at least $304,970, head of household filers with taxable incomes of at least $243,720, or individuals with incomes of at least $183,340. The new bill adds a tax bracket with an income tax rate of 10.85% for married joint filers and surviving spouses earning at least $1 million per year. The same rate would apply to single taxpayers earning at least $600,000 annually or head of household filers earning above $800,000. While the reach of this new tax bracket may be small, its impact for those individuals will be significant, and could require major changes in their current tax planning strategy.
Child Tax Credit
Similarly narrow in reach, but significant in impact for those it affects, is the new child tax credit. This tax credit, of up to $1,750 per child, begins to phase out for married filers who make $35,000 annually and single taxpayers who make $29,500.
Taxes are an unavoidable, often substantial part of your overall financial picture. Legislative changes, such as those enacted by the state of Minnesota in 2023 can have a major impact on your finances, today and well into the future. At Affiance Financial, we remain curious, staying up to date on changes that could affect your financial plan, so that you don’t have to. If you would like to discuss how the 2023 Minnesota Tax Legislation impacts your tax planning strategy, reach out to your financial planner today.
This article is being provided for informational purposes only. It is not intended to provide specific tax advice. For specific tax advice, the services of an accountant should be sought. Affiance Financial does not serve as an accountant and does not prepare tax returns.