1.1 	 A bill for an act
1.2 	 relating to taxation; individual income; reducing marriage penalties; amending 
1.3 	Minnesota Statutes 2004, sections 290.067, subdivision 2a; 290.0671, 
1.4 	subdivisions 1, 1a; 290.091, subdivision 3.
1.5 	 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.6 	 Section 1. Minnesota Statutes 2004, section 290.067, subdivision 2a, is amended to 
1.7 	read:
1.8 		 Subd. 2a.Income.  (a) For purposes of this section, "income" means the sum of 
1.9 	the following:
1.10 	 (1) federal adjusted gross income as defined in section 62 of the Internal Revenue 
1.11 	Code; and plus 
1.12 	 (2) the sum of the following amounts to the extent not included in clause (1):
1.13 	 (i) all nontaxable income;
1.14 	 (ii) the amount of a passive activity loss that is not disallowed as a result of section 
1.15 	469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity 
1.16 	loss carryover allowed under section 469(b) of the Internal Revenue Code;
1.17 	 (iii) an amount equal to the total of any discharge of qualified farm indebtedness 
1.18 	of a solvent individual excluded from gross income under section 108(g) of the Internal 
1.19 	Revenue Code;
1.20 	 (iv) cash public assistance and relief;
1.21 	 (v) any pension or annuity (including railroad retirement benefits, all payments 
1.22 	received under the federal Social Security Act, supplemental security income, and veterans 
1.23 	benefits), which was not exclusively funded by the claimant or spouse, or which was 
2.1 	funded exclusively by the claimant or spouse and which funding payments were excluded 
2.2 	from federal adjusted gross income in the years when the payments were made;
2.3 	 (vi) interest received from the federal or a state government or any instrumentality 
2.4 	or political subdivision thereof;
2.5 	 (vii) workers' compensation;
2.6 	 (viii) nontaxable strike benefits;
2.7 	 (ix) the gross amounts of payments received in the nature of disability income or 
2.8 	sick pay as a result of accident, sickness, or other disability, whether funded through 
2.9 	insurance or otherwise;
2.10 	 (x) a lump sum distribution under section 402(e)(3) of the Internal Revenue Code;
2.11 	 (xi) contributions made by the claimant to an individual retirement account, 
2.12 	including a qualified voluntary employee contribution; simplified employee pension plan; 
2.13 	self-employed retirement plan; cash or deferred arrangement plan under section 401(k) 
2.14 	of the Internal Revenue Code; or deferred compensation plan under section 457 of the 
2.15 	Internal Revenue Code; and
2.16 	 (xii) nontaxable scholarship or fellowship grants; minus 
2.17 	 (3) in the case of a married couple filing a joint return, the earned income of the 
2.18 	lesser-earning spouse, as defined in section 290.0675, subdivision 1, paragraph (d).
2.19 	 In the case of an individual who files an income tax return on a fiscal year basis, the 
2.20 	term "federal adjusted gross income" means federal adjusted gross income reflected in the 
2.21 	fiscal year ending in the next calendar year.  Federal adjusted gross income may not be 
2.22 	reduced by the amount of a net operating loss carryback or carryforward or a capital loss 
2.23 	carryback or carryforward allowed for the year.
2.24 	 (b) "Income" does not include:
2.25 	 (1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and 
2.26 	102;
2.27 	 (2) amounts of any pension or annuity that were exclusively funded by the claimant 
2.28 	or spouse if the funding payments were not excluded from federal adjusted gross income 
2.29 	in the years when the payments were made;
2.30 	 (3) surplus food or other relief in kind supplied by a governmental agency;
2.31 	 (4) relief granted under chapter 290A;
2.32 	 (5) child support payments received under a temporary or final decree of dissolution 
2.33 	or legal separation; and
2.34 	 (6) restitution payments received by eligible individuals and excludable interest as 
2.35 	defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of 
2.36 	2001, Public Law 107-16.

3.1 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
3.2 	December 31, 2004.

3.3 	 Sec. 2. Minnesota Statutes 2004, section 290.0671, subdivision 1, is amended to read:
3.4 		 Subdivision 1.Credit allowed.  (a) An individual is allowed a credit against the 
3.5 	tax imposed by this chapter equal to a percentage of earned income.  To receive a credit, 
3.6 	a taxpayer must be eligible for a credit under section 32 of the Internal Revenue Code. 
3.7 	An individual who would have been eligible for a credit under section 32 of the Internal 
3.8 	Revenue Code if the phaseout in section 32(b) were calculated based on the income 
3.9 	thresholds provided in paragraphs (b) through (d) is also eligible for a credit under this 
3.10 	section.
3.11 	 (b) For individuals with no qualifying children, the credit equals 1.9125 percent of 
3.12 	the first $4,620 of earned income.  The credit is reduced by 1.9125 percent of earned 
3.13 	income or modified adjusted gross income, whichever is greater, minus the earned income 
3.14 	of the lesser-earning spouse,in excess of $5,770, but in no case is the credit less than zero.
3.15 	 (c) For individuals with one qualifying child, the credit equals 8.5 percent of the first 
3.16 	$6,920 of earned income and 8.5 percent of earned income over $12,080 but less than 
3.17 	$13,450. The credit is reduced by 5.73 percent of earned income or modified adjusted 
3.18 	gross income, whichever is greater, minus the earned income of the lesser-earning 
3.19 	spouse,in excess of $15,080, but in no case is the credit less than zero.
3.20 	 (d) For individuals with two or more qualifying children, the credit equals ten 
3.21 	percent of the first $9,720 of earned income and 20 percent of earned income over $14,860 
3.22 	but less than $16,800.  The credit is reduced by 10.3 percent of earned income or modified 
3.23 	adjusted gross income, whichever is greater, minus the earned income of the lesser-earning 
3.24 	spouse,in excess of $17,890, but in no case is the credit less than zero.
3.25 	 (e) For a nonresident or part-year resident, the credit must be allocated based on the 
3.26 	percentage calculated under section 290.06, subdivision 2c, paragraph (e).
3.27 	 (f) For a person who was a resident for the entire tax year and has earned income 
3.28 	not subject to tax under this chapter, including income excluded under section 290.01, 
3.29 	subdivision 19b, clause (11), the credit must be allocated based on the ratio of federal 
3.30 	adjusted gross income reduced by the earned income not subject to tax under this chapter 
3.31 	over federal adjusted gross income.
3.32 	 (g) For tax years beginning after December 31, 2001, and before December 31, 
3.33 	2004, the $5,770 in paragraph (b), the $15,080 in paragraph (c), and the $17,890 in 
3.34 	paragraph (d), after being adjusted for inflation under subdivision 7, are each increased by 
3.35 	$1,000 for married taxpayers filing joint returns.
4.1 	 (h) For tax years beginning after December 31, 2004, and before December 31, 
4.2 	2007, the $5,770 in paragraph (b), the $15,080 in paragraph (c), and the $17,890 in 
4.3 	paragraph (d), after being adjusted for inflation under subdivision 7, are each increased by 
4.4 	$2,000 for married taxpayers filing joint returns.
4.5 	 (i) For tax years beginning after December 31, 2007, and before December 31, 2010, 
4.6 	the $5,770 in paragraph (b), the $15,080 in paragraph (c), and the $17,890 in paragraph 
4.7 	(d), after being adjusted for inflation under subdivision 7, are each increased by $3,000 for 
4.8 	married taxpayers filing joint returns. For tax years beginning after December 31, 2008, 
4.9 	the $3,000 is adjusted annually for inflation under subdivision 7.
4.10 	 (j) The commissioner shall construct tables showing the amount of the credit at 
4.11 	various income levels and make them available to taxpayers.  The tables shall follow 
4.12 	the schedule contained in this subdivision, except that the commissioner may graduate 
4.13 	the transition between income brackets.

4.14 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
4.15 	December 31, 2004.

4.16 	 Sec. 3. Minnesota Statutes 2004, section 290.0671, subdivision 1a, is amended to read:
4.17 		 Subd. 1a.Definitions.  For purposes of this section, the terms "qualifying child," 
4.18 	"earned income," and "adjusted gross income" have the meanings given in section 32(c) of 
4.19 	the Internal Revenue Code. "Earned income of lesser-earning spouse" has the meaning 
4.20 	given in section 290.0675, subdivision 1, paragraph (d).

4.21 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
4.22 	December 31, 2004.

4.23 	 Sec. 4. Minnesota Statutes 2004, section 290.091, subdivision 3, is amended to read:
4.24 		 Subd. 3.Exemption amount.  For purposes of computing the alternative minimum 
4.25 	tax, the exemption amount is the exemption determined under section 55(d) of the Internal 
4.26 	Revenue Code, as amended through December 31, 1992, except that (1) for married 
4.27 	couples filing joint returns, the exemption amount equals two times the amount allowed 
4.28 	in section 55(d)(1)(B) of the Internal Revenue Code as amended through December 
4.29 	31, 1992, and the phaseout threshold equals two times the amount provided in section 
4.30 	55(d)(3)(B) of the Internal Revenue Code as amended through December 31, 1992; (2) 
4.31 	for married couples filing separate returns, the exemption amount and phaseout threshold 
4.32 	equal one-half the amounts provided for married couples filing joint returns; and (3) for all 
5.1 	other filers,alternative minimum taxable income as determined under this section must be 
5.2 	substituted in the computation of the phase out under section 55(d)(3).

5.3 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
5.4 	December 31, 2004.