SF 4961

Introduction - 94th Legislature (2025 - 2026)

Posted on 04/08/2026 09:24 a.m.

A bill for an act
relating to taxation; property tax refunds; excluding scholarships, dependent flexible
spending accounts, and health flexible spending accounts from the income definition
used by the homestead credit refund program; amending Minnesota Statutes 2025
Supplement, section 290A.03, subdivision 3.

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

Section 1.

Minnesota Statutes 2025 Supplement, section 290A.03, subdivision 3, is
amended to read:

Subd. 3.

Income.

(a) "Income" means the sum of the following:

(1) federal adjusted gross income as defined in the Internal Revenue Code; and

(2) the sum of the following amounts to the extent not included in clause (1):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section 469,
paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity loss
carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness of a
solvent individual excluded from gross income under section 108(g) of the Internal Revenue
Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments received
under the federal Social Security Act, Supplemental Security Income, and veterans benefits),
which was not exclusively funded by the claimant or spouse, or which was funded exclusively
by the claimant or spouse and which funding payments were excluded from federal adjusted
gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality or
political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or sick
pay as a result of accident, sickness, or other disability, whether funded through insurance
or otherwise;

(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of
1986, as amended through December 31, 1995;

(xi) contributions made by the claimant to an individual retirement account, including
a qualified voluntary employee contribution; simplified employee pension plan;
self-employed retirement plan; cash or deferred arrangement plan under section 401(k) of
the Internal Revenue Code; or deferred compensation plan under section 457 of the Internal
Revenue Code, to the extent the sum of amounts exceeds the retirement base amount for
the claimant and spouse;

(xii) to the extent not included in federal adjusted gross income, distributions received
by the claimant or spouse from a traditional or Roth style retirement account or plan;

deleted text begin (xiii) nontaxable scholarship or fellowship grants;
deleted text end

deleted text begin (xiv) deleted text end new text begin (xiii) new text end alimony received to the extent not included in the recipient's income;

deleted text begin (xv) deleted text end new text begin (xiv) new text end the amount of deduction allowed under section 220 or 223 of the Internal
Revenue Code;

deleted text begin (xvi) deleted text end new text begin (xv) new text end the amount deducted for tuition expenses under section 222 of the Internal
Revenue Code; and

deleted text begin (xvii) deleted text end new text begin (xvi) new text end the amount deducted for certain expenses of elementary and secondary school
teachers under section 62(a)(2)(D) of the Internal Revenue Code.

In the case of an individual who files an income tax return on a fiscal year basis, the
term "federal adjusted gross income" shall mean federal adjusted gross income reflected in
the fiscal year ending in the calendar year. Federal adjusted gross income shall not be reduced
by the amount of a net operating loss carryback or carryforward or a capital loss carryback
or carryforward allowed for the year.

(b) "Income" does not include:

(1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and 102;

(2) amounts of any pension or annuity which was exclusively funded by the claimant
or spouse and which funding payments were not excluded from federal adjusted gross
income in the years when the payments were made;

(3) to the extent included in federal adjusted gross income, amounts contributed by the
claimant or spouse to a traditional or Roth style retirement account or plan, but not to exceed
the retirement base amount reduced by the amount of contributions excluded from federal
adjusted gross income, but not less than zero;

(4) surplus food or other relief in kind supplied by a governmental agency;

(5) relief granted under this chapter;

(6) child support payments received under a temporary or final decree of dissolution or
legal separation;

(7) restitution payments received by eligible individuals and excludable interest as
defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2001,
Public Law 107-16;

(8) alimony paid;

(9) veterans disability compensation paid under title 38 of the United States Code;

(10) to the extent included in federal adjusted gross income, the amount of discharge of
indebtedness awarded to the claimant under section 332.74, subdivision 3; deleted text begin or
deleted text end

(11) to the extent included in federal adjusted gross income, the amount of consumer
enforcement public compensation received as a distribution to an eligible consumer under
section 8.37, subdivision 5 new text begin ;
new text end

new text begin (12) the amount of dependent care assistance excluded from gross income under section
129 of the Internal Revenue Code;
new text end

new text begin (13) the amount the taxpayer contributed to a health flexible spending arrangement that
is excluded from gross income as a cafeteria plan under section 125 of the Internal Revenue
Code and is subject to the limitation under section 125(i) of the Internal Revenue Code; or
new text end

new text begin (14) nontaxable scholarship or fellowship grants new text end .

(c) The sum of the following amounts may be subtracted from income:

(1) for the claimant's first dependent, the exemption amount multiplied by 1.4;

(2) for the claimant's second dependent, the exemption amount multiplied by 1.3;

(3) for the claimant's third dependent, the exemption amount multiplied by 1.2;

(4) for the claimant's fourth dependent, the exemption amount multiplied by 1.1;

(5) for the claimant's fifth dependent, the exemption amount; and

(6) if the claimant or claimant's spouse had a disability or attained the age of 65 on or
before December 31 of the year for which the taxes were levied, the exemption amount.

(d) For purposes of this subdivision, the following terms have the meanings given:

(1) "exemption amount" means the exemption amount under section 290.0121,
subdivision 1, paragraph (b), for the taxable year for which the income is reported;

(2) "retirement base amount" means the deductible amount for the taxable year for the
claimant and spouse under section 219(b)(5)(A) of the Internal Revenue Code, adjusted for
inflation as provided in section 219(b)(5)(C) of the Internal Revenue Code, without regard
to whether the claimant or spouse claimed a deduction; and

(3) "traditional or Roth style retirement account or plan" means retirement plans under
sections 401, 403, 408, 408A, and 457 of the Internal Revenue Code.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with refunds based on property
taxes payable in 2027.
new text end