How do Minnesota Democrats' three tax plans differ?

DFL leaders must align tax bill differences, from rebate checks to Social Security tax breaks.

Gov. Tim Walz signed a federal tax conformity bill on Jan. 12 in the reception room at the State Capitol.
Gov. Tim Walz signed a federal tax conformity bill on Jan. 12 in the reception room at the State Capitol.

— Jeff Wheeler, Star Tribune file

Minnesota Democrats have set forth a trio of tax plans that mix credits and cuts with increases and one-time checks — but exactly who gets what, and how much, must be ironed out in the next month.

The Senate unveiled a tax bill this week that contains less money for rebate checks than Gov. Walz would like and a smaller child tax credit for a broader range of families with children than the House suggested. Similar to Walz and the House, it would give Social Security tax breaks only to recipients with incomes below a certain threshold.

"I look at this bill and these numbers, and I look at every single family in my neighborhood, and every single one of them benefits from this bill," said bill sponsor Sen. Ann Rest, DFL-New Hope. "And I think that is something I'm certainly going to be proud of."

The House and Walz have already released their tax plans. Now leaders from the three DFL-led entities must square the proposals. While they share broad priorities, their tax bills vary significantly on some key points.

Those bills are not the only pieces of legislation to include potential hikes or cuts. Other measures at the Capitol include ideas such as creating a new payroll tax to fund a paid family and medical leave program.

Given the state's estimated $17.5 billion surplus, Republican lawmakers argue that Democrats should not add or raise taxes. DFL leaders contend the increases are necessary to support state services long-term, noting much of the surplus is one-time money.

Here are some key differences among the three tax proposals.

Rebate checks

House: Single tax filers would receive a one-time refundable tax credit of $275 if their adjusted gross income was $75,000 or less in tax year 2021. Married joint filers would get $550 if they did not make more than $150,000. And households would receive $275 for each dependent, up to three people.

Senate: Single filers earning up to $75,000 would get a one-time rebate of $279. Married couples who earned $150,000 or less would get $558. And families with children would get $56 per child, up to three kids.

Walz: Individuals whose adjusted gross income is less than $75,000 would get $1,000 under the governor's proposal, while married joint filers who make less than $150,000 would receive $2,000. A family could get $200 for every dependent, up to three kids.

Child tax credits

House: Low-income families could get up to $1,175 per child under a restructured working family credit. The credit would start phasing out at roughly $35,000 in income for married joint filers.

Senate: Families making up to $80,000 in annual income would be eligible for a new tax credit of $620 per child, for up to three children. Families with a household income of up to $160,000 could also qualify for a tax credit between $3,000 and $12,500 to help with child-care costs, depending on the age of their children and their child-care costs.

Walz: A new state refundable tax credit for children would provide $1,000 per child for married joint filers with up to $50,000 in household income, with a maximum credit of $3,000. Families with one child under 5 would also receive up to $4,000 per year to help cover child-care costs, while families with three children under 5 could receive up to $10,500. The benefit would phase out between $200,000 and $240,000 in household income.

Social Security

House: Married joint filers earning up to $100,000 annually and single filers earning up to $78,000 would not pay state taxes on their Social Security income.

Senate: Couples earning up to $100,000 each year and individuals earning up to $78,000 would be exempt from Social Security income taxes.

Walz: Only a portion of Social Security income is subject to taxes. The maximum subtraction for Social Security benefits would increase to $10,000 for married taxpayers. For single filers, it would increase to $7,800. The thresholds to get that full benefit would also increase to up to $120,000 in annual income for married joint filers and $93,600 for single filers.

Tax increases

House: Multinational corporations would be required to report profits from subsidiaries. A new fifth-tier income tax of 10.85% would apply to single filers earning more than $600,000 and married joint filers with income over $1 million.

Senate: Multinational corporations with profits in Minnesota would also have to report profits from subsidiaries around the world, making that income taxable in Minnesota.

Walz: A new Minnesota tax of 1.5% on capital gains and dividends between $500,000 and $1 million would be created. A new 4% tax would apply to gains over $1 million for individuals, trusts and estates.

Education credits

House: The state's K-12 education credit would expand from $1,000 to $1,500 per child for classroom-related expenses and the student loan credit would be refundable, with the maximum credit increased from $500 to $1,000.

Senate: The K-12 credit would be raised from $1,000 to $1,500 while increasing the annual income limit to qualify for the full credit up to $70,000.

Walz: The income limit to qualify for the K-12 education tax credit would increase from $33,500 to $59,210 annually, boosting the number of people who qualify for the full credit.

Housing credits

House: Homestead credit refunds and renter's credits would get a one-time 13.8% boost. Homestead credit refund co-pays would be permanently reduced. The renter's credit would be refundable, based on adjusted gross income and included in the normal tax filing period, with the changes expected to amount to nearly $379 million over the next two years for renters. Minnesotans with an Individual Taxpayer Identification Number (ITIN) who own a home could qualify for homestead status, potentially lowering their taxes and allowing them to get a homestead property tax refund.

Senate: More homeowners could see larger property tax refunds under a change that gives a maximum $2,000 refund to homeowners whose property taxes increase by more than 10% in a year. Property owners who have an ITIN could apply for homestead status.

Walz: People with an ITIN could qualify for homestead status.

Local aid

House: Both the state's Local Government Aid for cities and its County Program Aid would increase by $100 million and be indexed to inflation starting in fiscal 2027. Municipalities would also benefit from a temporary construction sales tax exemption. The bill does not grant the requests of a record number of local governments seeking legislative sign-off on plans to put sales tax requests before voters. Instead, the House would create a task force to examine local taxes. The measure also dedicates $75 million to tribal nation aid.

Senate: The state's Local Government Aid and County Program Aid would be boosted by $40 million each. Communities would get $325 million in one-time public safety aid. The measure would allow many cities to impose or extend local sales taxes, from St. Paul to Rochester to Hibbing.

Walz: Local Government Aid and County Program Aid would each increase by $40 million. Local governments would get an additional $550 million to use on public safety measures, like hiring police. Local governments and some other groups would get the short-term construction sales tax exemption.