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Minnesotans Miss Out On Some Federal Tax Breaks

In order to save the state about $300 million over two years, Minnesota’s new tax code will not conform to the federal code—leaving out multiple tax cuts enjoyed in other states.

Minnesotans Miss Out On Some Federal Tax Breaks
Some employer tax benefits will disappear in Minnesota as the state diverges from the federal tax code.
 
The American Taxpayer Relief Act of 2012 provided many federal tax provisions that allow certain income items to remain exempt from taxation—such as employer-provided educational benefits, adoption assistance, and transit benefits.
 
Minnesota’s 2013 omnibus tax bill, however, only required the state to conform to the relief act for the 2012 tax year and not for 2013 or beyond—and this year, Minnesota is removing a few of the breaks provided at the federal level.
 
Minnesotans will lose out on tax breaks for childcare credits, mortgage insurance premiums, student loan interest payments, and more.
 
According to the Pioneer Press, Minnesota has matched most federal tax changes for the last 25 years but, due to recent budget shortfalls, state lawmakers thought conforming to all of the changes would cost the state too much money—$300 million over two years, according to the Minnesota Department of Revenue.
 
About 12,000 Minnesotans will pay an average of $250 to $300 more in state income taxes because of the non-conformity, the St. Paul newspaper reported.

Representative Ann Lenzewski, chair of the house tax committee, reportedly proposed paying for the revenue shortage by adjusting Minnesota’s income tax brackets but couldn’t get her proposal past the Senate or Governor Mark Dayton.
 
Tim Goodman, an attorney who specializes in employee benefits, told Minnesota Public Radio that nonconformity with state and federal tax codes is a hassle for both consumers and employers and that many of his clients who offer tuition and adoption assistance will have to take the taxes out of their employees’ paychecks as a lump sum later this year.
 
“Payroll systems are enormously complex and it’s very difficult to reprogram them,” he said. “Especially when the federal tax rules are different from the state tax rules, it takes extra time and effort to make sure things are being done correctly.”
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