HF 2591

as introduced - 94th Legislature (2025 - 2026) Posted on 03/20/2025 03:03pm

A bill for an act
relating to taxation; individual income; establishing a fifth tier of the individual
income tax at a rate sufficient to offset lost federal Medicaid funds; amending
Minnesota Statutes 2024, section 290.06, subdivisions 2c, 2d.

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

Section 1.

Minnesota Statutes 2024, section 290.06, subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income taxes
imposed by this chapter upon married individuals filing joint returns and surviving spouses
as defined in section 2(a) of the Internal Revenue Code must be computed by applying to
their taxable net income the following schedule of rates:

(1) On the first deleted text begin $38,770 deleted text end new text begin $47,620 new text end , 5.35 percent;

(2) On all over deleted text begin $38,770 deleted text end new text begin $47,620 new text end , but not over deleted text begin $154,020 deleted text end new text begin $189,180 new text end , 6.8 percent;

(3) On all over deleted text begin $154,020 deleted text end new text begin $189,180 new text end , but not over deleted text begin $269,010 deleted text end new text begin $330,410 new text end , 7.85 percent;

(4) On all over deleted text begin $269,010 deleted text end new text begin $330,410 new text end , new text begin but not over $1,667,000, new text end 9.85 percent new text begin ; and
new text end

new text begin (5) On all over $1,667,000, the percentage determined under paragraph (g) new text end .

Married individuals filing separate returns, estates, and trusts must compute their income
tax by applying the above rates to their taxable income, except that the income brackets
will be one-half of the above amounts after the adjustment required in subdivision 2d.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $26,520 deleted text end new text begin $32,570 new text end , 5.35 percent;

(2) On all over deleted text begin $26,520 deleted text end new text begin $32,570 new text end , but not over deleted text begin $87,110 deleted text end new text begin $106,990 new text end , 6.8 percent;

(3) On all over deleted text begin $87,110 deleted text end new text begin $106,990 new text end , but not over deleted text begin $161,720 deleted text end new text begin $198,630 new text end , 7.85 percent;

(4) On all over deleted text begin $161,720 deleted text end new text begin $198,630 new text end , new text begin but not over $1,000,000, new text end 9.85 percent new text begin ; and
new text end

new text begin (5) On all over $1,000,000, the percentage determined under paragraph (g) new text end .

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying as
a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $32,650 deleted text end new text begin $40,100 new text end , 5.35 percent;

(2) On all over deleted text begin $32,650 deleted text end new text begin $40,100 new text end , but not over deleted text begin $131,190 deleted text end new text begin $161,130 new text end , 6.8 percent;

(3) On all over deleted text begin $131,190 deleted text end new text begin $161,130 new text end , but not over deleted text begin $214,980 deleted text end new text begin $264,050 new text end , 7.85 percent;

(4) On all over deleted text begin $214,980 deleted text end new text begin $264,050 new text end , new text begin but not over $1,334,000, new text end 9.85 percent new text begin ; and
new text end

new text begin (5) On all over $1,334,000, the percentage determined under paragraph (g) new text end .

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the tax
of any individual taxpayer whose taxable net income for the taxable year is less than an
amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not more
than $100. The amount of tax for each bracket shall be computed at the rates set forth in
this subdivision, provided that the commissioner may disregard a fractional part of a dollar
unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute the
individual's Minnesota income tax as provided in this subdivision. After the application of
the nonrefundable credits provided in this chapter, the tax liability must then be multiplied
by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income as
defined in section 62 of the Internal Revenue Code and increased by:

(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, 17, 19,
and 20, and 290.0137, paragraph (a); and reduced by

(ii) the Minnesota assignable portion of the subtraction for United States government
interest under section 290.0132, subdivision 2, the subtractions under sections 290.0132,
subdivisions 9, 10, 14, 15, 17, 18, 27, 31, and 32, and 290.0137, paragraph (c), after applying
the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in section
62 of the Internal Revenue Code, increased by:

(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, 17, 19,
and 20, and 290.0137, paragraph (a); and reduced by

(ii) the subtractions under sections 290.0132, subdivisions 2, 9, 10, 14, 15, 17, 18, 27,
31, and 32, and 290.0137, paragraph (c).

(f) If an individual who is not a Minnesota resident for the entire year is a qualifying
owner of a qualifying entity that elects to pay tax as provided in section 289A.08, subdivision
7a, paragraph (b), the individual must compute the individual's Minnesota income tax as
provided in paragraph (e), and also must include, to the extent attributed to the electing
qualifying entity:

(1) in paragraph (e), clause (1), item (i), and paragraph (e), clause (2), item (i), the
addition under section 290.0131, subdivision 5; and

(2) in paragraph (e), clause (1), item (ii), and paragraph (e), clause (2), item (ii), the
subtraction under section 290.0132, subdivision 3.

new text begin (g) For taxable years beginning after December 31, 2024, and before January 1, 2027,
the commissioner of revenue must calculate the tax rate that applies under paragraphs (a),
clause (5); (b), clause (5); and (c), clause (5). The commissioner must set the rate at the
level the commissioner estimates would be necessary to raise an amount of revenue in fiscal
years 2026 and 2027 equal to the amount lost due to federal policy changes, as certified by
the commissioner of management and budget under section 3. The rate established by the
commissioner for taxable years beginning after December 31, 2024, and before January 1,
2027, remains in effect for taxable years beginning after December 31, 2026.
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. 2.

Minnesota Statutes 2024, section 290.06, subdivision 2d, is amended to read:

Subd. 2d.

Inflation adjustment of brackets.

The commissioner shall annually adjust
the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed
in subdivision 2c new text begin , except the fifth tier under paragraphs (a), clause (5); (b), clause (5); and
(c), clause (5), new text end as provided in section 270C.22. The statutory year is taxable year deleted text begin 2019 deleted text end new text begin 2025 new text end .
The rate applicable to any rate bracket must not be changed. The dollar amounts setting
forth the tax shall be adjusted to reflect the changes in the rate brackets. The rate brackets
as adjusted must be rounded to the nearest $10 amount. If the rate bracket ends in $5, it
must be rounded up to the nearest $10 amount. The commissioner shall determine the rate
bracket for married filing separate returns after this adjustment is done. The rate bracket
for married filing separate must be one-half of the rate bracket for married filing joint.

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. new text begin COMMISSIONER OF MANAGEMENT AND BUDGET TO ESTIMATE
FEDERAL FUNDING LOSS.
new text end

new text begin (a) No later than December 31, 2025, the commissioner of management and budget must
calculate and certify to the commissioner of revenue an estimate of the total net change in
federal Medicaid revenues received by the state in fiscal years 2026 and 2027 relative to
the amount anticipated in the governor's budget that is the result of:
new text end

new text begin (1) executive actions implemented on or after January 20, 2025, including but not limited
to executive orders, changes to administrative rules, and changes to other administrative
guidance; and
new text end

new text begin (2) changes to federal law or administrative rules enacted by the 119th Congress.
new text end

new text begin (b) The commissioner of revenue must use the amount certified under this section to
calculate the rate for the fifth tier of the individual income tax, as provided in Minnesota
Statutes, section 290.06, subdivision 2c, paragraph (g).
new text end

new text begin (c) For the purposes of this section, "governor's budget" means the budget submitted to
the legislature under Minnesota Statutes, section 16A.11, for fiscal years 2026 and 2027.
new text end