Because of how state tax brackets are structured, married couples who file a joint income tax return (with two incomes) may pay more taxes than if they filed separate returns for the same income. To make up the difference, Minnesota offers the Marriage Credit.
You may qualify for the Marriage Credit for tax year 2016 if all of the following are true:
- You are married and filing a joint return.
- Each spouse has taxable earned income, taxable pension or taxable Social Security income.
- Your joint taxable income is at least $37,000.
- The income of the lesser-earning spouse is at least $23,000.
What income do I include when calculating the Marriage Credit?
You must include any “earned income” that is taxable in Minnesota and taxable pension, IRA or Social Security income. Details on certain kinds of income are below, along with a list of Income Types for the Marriage Credit. For more information, view the statute (M.S. 290.0675)
When calculating the credit, include only earned income that is:
Do not include nontaxable earned income, such as 401(k) contributions.
Self-employment Earned Income
If you are self-employed, your earned income is equal to your net profit minus:
- half of the self-employment tax you paid; and
- any business losses from self-employment
Taxable Social Security Income
If you are receiving Social Security income, you must prorate the taxable portion according to each spouse’s share of the net benefits received (Box 5 of federal Form SSA-1099). The amount of taxable Social Security is on Line 20b of federal Form 1040 or Line 14b of Form 1040A.
Example: John and June file jointly. John receives net benefits of $10,000 and June receives $5,000. Their taxable Social Security benefits are $3,000. When calculating their income for the Marriage Credit, John will include 2/3, or $2,000, and June will allocate 1/3, or $1,000.
Minnesota taxable IRA distributions and taxable pensions
Taxable distributions from an IRA or pension are included in earned income from lines 15b, 16b and 20b of federal Form 1040, or lines 11b, 12b and 14b of Form 1040A. Do not include federally taxable Railroad Retirement Board pension income since it is not taxed by Minnesota.
Prorated for part-year residents and nonresidents
Income Types for the Marriage Credit
The following types of income are eligible for the Marriage Credit:
- Wages, salaries and tips
- Union strike benefits
- Statutory employee’s gross income
- Long-term disability benefits received prior to the minimum retirement age
- Earnings from self-employment
- Social Security
- Pensions or annuities
- IRA distributions
The following types of income are not eligible for the Marriage Credit:
- Voluntary salary deferrals such as 401(k) or similar contributions
- Unemployment compensation benefits
- Interest and dividends
- Alimony and child support
- Combat zone pay that is not taxable
- Basic and in-kind quarters and subsistence allowances for the U.S. military
- Meals or lodging provided by an employer for the employer's convenience
- Housing allowance or rental value of a parsonage for clergy
- Dependent care benefits that are not taxable
- Voluntary salary reductions such as those taken under a cafeteria plan
- Railroad Retirement Board benefits
- Rental income
- Taxable scholarship or fellowship grants not reported on Form W-2
- Welfare benefits or Workfare payments
- Workers’ compensation benefits
- Veterans benefits including VA rehabilitation payments
- Earnings for work performed while an inmate at a penal institution