Minnesota Tax Relief Has Arrived
On July 1, 2021, Governor Tim Walz signed a long-awaited tax bill. Highlights of the new Minnesota law include:
• Full conformity with the federal tax treatment of PPP loans. Loan forgiveness is now tax free, and the expenses paid using loan proceeds are deductible, the same as if paid with other business funds.
• Full conformity with the federal tax treatment of SBA economic injury disaster loans (EIDL). EIDL grants are now tax free.
• Qualifying pass-through entities can pay a new tax and file a yet-to-be created Minnesota pass-through entity tax return beginning with the 2021 tax year. It will be treated similarly to how composite tax returns are treated and is meant as a workaround for the federal disallowance of the deduction for state income taxes.
• Full conformity with the federal tax treatment of unemployment compensation. Up to $10,200 is excluded per taxpayer when modified gross income is under $150,000.
• Conformity with the federal tax treatment of certain coronavirus-related 2020 retirement distributions. The tax on qualifying distributions can now be split with 1/3 paid on each of your 2020, 2021 and 2022 tax returns. Also, tax-free treatment is now allowed when qualifying distributions are repaid within 3 years of the date the distribution was received. Tax payments followed by amended returns may be needed to receive tax refunds depending on when the distribution is repaid.
• Exclusion from gross income for loan forgiveness on a taxpayer’s principal residence to conform with federal treatment. The provision is effective for tax years 2018 through 2020.
What if I already filed my Minnesota tax return and I’m now entitled to a refund because of the law changes? At this time, you should wait. The Minnesota Department of Revenue announced that it will attempt to make appropriate adjustments to returns and send refunds automatically in as many cases as it is able to without too much difficulty. In the coming weeks we will learn what situations will require amending returns to receive a refund.
As you can see, this can get complicated and requires an in-depth understanding. Reach out to a member of our tax team, or contact the article author, Steve Warren for more information.