HF 2197

Introduction - 94th Legislature (2025 - 2026)

Posted on 03/12/2025 11:38 a.m.

A bill for an act
relating to taxation; individual income; eliminating the child credit marriage penalty
and increasing the phaseout; limiting the working family credit based on earned
income to taxpayers with qualifying children; amending Minnesota Statutes 2024,
sections 290.0661, subdivisions 4, 7; 290.0671, subdivisions 1, 7.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2024, section 290.0661, subdivision 4, is amended to read:

Subd. 4.

Phaseout.

The credits under subdivision 2 and section 290.0671 are phased
down jointly. The combined amount of the credits is reduced by 12 percent of earned income
or adjusted gross income, whichever is greater, in excess of the phaseout threshold. The
phaseout threshold equals:

(1) deleted text begin $35,000 deleted text end new text begin $75,000 new text end for a married taxpayer filing a joint return; or

(2) deleted text begin $29,500 deleted text end new text begin $37,500 new text end for all other filers.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2024.
new text end

Sec. 2.

Minnesota Statutes 2024, section 290.0661, subdivision 7, is amended to read:

Subd. 7.

Inflation adjustment.

(a) deleted text begin For taxable years beginning after December 31,
2025, deleted text end The commissioner of revenue must annually adjust for inflation the credit amount in
subdivision 3 as provided in section 270C.22. The adjusted amounts must be rounded to
the nearest $60. The statutory year is taxable year 2025.

(b) deleted text begin For taxable years beginning after December 31, 2023, deleted text end The commissioner of revenue
must annually adjust for inflation the phaseout thresholds in subdivision 4, as provided in
section 270C.22. The statutory year is taxable year deleted text begin 2023 deleted text end new text begin 2025 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2025.
new text end

Sec. 3.

Minnesota Statutes 2024, section 290.0671, subdivision 1, is amended to read:

Subdivision 1.

Credit allowed.

(a) An individual who is a resident of Minnesota is
allowed a credit against the tax imposed by this chapter equal to a percentage of earned
income. To receive a credit, a taxpayer must be eligible for a credit under section 32 of the
Internal Revenue Code, except that:

(1) a taxpayer with no qualifying children who has attained the age of 19, but not attained
age 65 before the close of the taxable year and is otherwise eligible for a credit under section
32 of the Internal Revenue Code may also receive a credit;

(2) a taxpayer who is otherwise eligible for a credit under section 32 of the Internal
Revenue Code remains eligible for the credit even if the taxpayer's earned income or adjusted
gross income exceeds the income limitation under section 32 of the Internal Revenue Code;
and

(3) section 32(m) of the Internal Revenue Code does not apply.

(b) A taxpayer's working family credit equals four percent of the first deleted text begin $8,750 deleted text end new text begin $9,480 new text end of
earned income.

(c) The credit under this section is increased by:

(1) deleted text begin $925 deleted text end new text begin $1,000 new text end for a taxpayer with one qualifying older child;

(2) deleted text begin $2,100 deleted text end new text begin $2,270 new text end for a taxpayer with two qualifying older children; or

(3) deleted text begin $2,500 deleted text end new text begin $2,710 new text end for a taxpayer with three or more qualifying older children.

(d) The credit under this section is phased out jointly with the credit under section
290.0661, subdivision 4. For a taxpayer with one or more qualifying older children who
did not qualify for the credit under section 290.0661, the phaseout rate equals nine percent.

(e) For a person who was a resident for the entire tax year and has earned income not
subject to tax under this chapter, the credit must be allocated based on the ratio of federal
adjusted gross income reduced by the earned income not subject to tax under this chapter
over federal adjusted gross income. For purposes of this paragraph, the following clauses
are not considered "earned income not subject to tax under this chapter":

(1) the subtractions for military pay under section 290.0132, subdivisions 11 and 12;

(2) the exclusion of combat pay under section 112 of the Internal Revenue Code; and

(3) income derived from an Indian reservation by an enrolled member of the reservation
while living on the reservation.

new text begin (f) The credit based on earned income under paragraph (b) is limited to taxpayers with:
new text end

new text begin (1) a qualifying older child; or
new text end

new text begin (2) a qualifying child, as defined in section 290.0661, subdivision 1.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2024.
new text end

Sec. 4.

Minnesota Statutes 2024, section 290.0671, subdivision 7, is amended to read:

Subd. 7.

Inflation adjustment.

The commissioner shall annually adjust the earned
income amounts used to calculate the credit and the qualifying older child amounts in
subdivision 1 as provided in section 270C.22. The statutory year is taxable year deleted text begin 2023 deleted text end new text begin 2025 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2025.
new text end