The ginormous tax bill had very few actual tax provisions; here’s what they are

Minnesota Capitol. Courtesy of Minnesota House Information Services.

The Minnesota Legislature in the final minutes of the 2024 session passed a more than 1,400-page tax bill that Democrats used to push through their to-do list, including a ban on a certain kind of rapid-fire gun trigger and a bill guaranteeing minimum pay rates for Uber and Lyft drivers. But the bill itself has very few tax provisions.

The biggest change will make last year’s child tax credit more user-friendly. The bill, which Gov. Tim Walz is expected to sign, allows families to receive the child tax credit in installments throughout the year, rather than in one lump sum.

The program creates a guaranteed minimum credit, meaning those who qualify for the child tax credit one year would be guaranteed to receive up to 50% of the amount for each child in the next tax year, without a tax penalty even if their income goes up. The bill makes this “safe-harbor” provision permanent; the point is to ensure families aren’t punished even if they find better-paying work. 

House Democrats wanted to allow 18-year-olds to be eligible for the credit, but that didn’t make it into the final bill.

The big tax bill also expands the definition of moist snuff tobacco, which will generate about $3 million in taxes in fiscal year 2024-2025 and about $7 million in fiscal year 2026-2027. This revenue will be used to offset some of the cost associated with the new child tax credit provisions.

The Department of Revenue will also receive $1 million to distribute grants to volunteer taxpayer assistance organizations that assist Minnesotans with filing their taxes, and another $1 million for grants to organizations that educate Minnesotans about the tax credits available to them.

Rep. Aisha Gomez, DFL-Minneapolis, and chair of the House Taxes Committee, said the few provisions were ultimately what she and Senate Taxes Chair Ann Rest, DFL-New Hope, could agree on.

Among the bills not included in the tax omnibus: a bill forcing corporations that make over $250 million in gross revenue to disclose more about their finances; the creation of a new account that aimed to distribute local sales tax revenue more equitably; and a proposal that would have created a state-run tax filing system, similar to H&R Block or Turbotax.

Paid Leave Law

Changes to the paid family and medical leave program that passed last year were also included in the tax bill, and it will mean a hike in the payroll tax used to pay for the program.

For starters, it’s no longer known as the paid family and medical leave program. The Department of Employment and Economic Development is referring to the program as “paid leave,” since paid family and medical leave was too much of a mouthful, said Evan Rowe, deputy commissioner with DEED.

The bill clarifies that the first week of the program will now be paid. 

Last year when DFL lawmakers approved the law creating the program, they repeatedly stated it would provide Minnesota workers 12 weeks of paid family leave and 12 weeks of paid medical leave per year, capped at 20 weeks in a single year.

But Rowe said the Walz administration’s interpretation of last year’s paid leave law was that the first week would not be paid for people who made medical claims, although the law was clear that all 12 weeks would be paid for those who took leave to bond with a newborn.

“Our interpretation of the bill previously was that the initial week was not payable under the previous law,” Rowe told the Reformer Wednesday.

The bill passed on Sunday now makes the first week of leave paid for people who make medical claims, but they’ll get the payment at a later date. The law clarifies that a person must have a “seven-day qualifying event” to get the first week paid retroactively. For example, if a person is applying for medical leave, they would need a medical provider to verify they have a condition that requires extended leave.

That person would file the claim, and then, likely in their first check, they will be paid for the first week of leave.

This retroactive payment will require a higher payroll tax, Rowe said. Last week, Rowe told lawmakers that if the bill passed with the retroactive payment, DEED would set the payroll tax at 0.88%, which is about 25% higher than the 0.7% tax DEED estimated last year.

But Rowe in the Reformer interview walked back his previous statement to lawmakers. The payroll tax will increase, but DEED hasn’t set an official rate yet, he said.

The 0.88% rate comes from a February letter from an actuary, which stated that “there is greater uncertainty when the program begins, and additional margin seems prudent when benefits become effective.”

Rowe said DEED will study the situation before deciding on the rate.

“The actuaries recommend that 0.88% rate based on the bill text, and our next steps really are to undertake due diligence to make sure that number is correct before we formally adjust the rate,” Rowe said.

The 0.88% payroll tax will bring in over $300 million in revenue for the paid leave fund compared to the 0.7% rate, House fiscal staff estimated. In the first year, they estimated the state will distribute over $1.6 billion in benefits through the paid leave program. 

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