Tax Law Changes
2023 Legislative Session
When state tax laws change, we share updates and guidance as soon as they are available. For the latest information:
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- Check this web page after new tax laws are enacted.
- Email your questions about specific law changes to TaxLawChanges@state.mn.us.
2023 Tax Law Updates
The 2023 legislative session resulted in a number of changes to Minnesota's tax code, including some that affect previous tax years. At this time, you should not amend any Minnesota returns solely to account for these changes. Major changes are summarized below. We will share updated guidance and tax forms for affected tax years as soon as they are available, generally in early fall.
Conformity to Internal Revenue Code
The tax bill updates state tax law conformity to the Internal Revenue Code (through May 1, 2023) and includes the SECURE Act 2.0. Visit 2023 Federal Conformity for Income Tax for more details.
Net Investment Tax
The bill enacted a new tax on net investment income, starting in tax year 2024. Net investment income includes but is not limited to interest, dividends, capital gains, rental and royalty income, and other similar income. It is reduced by certain deductions, like investment interest expenses, investment advisory and brokerage fees, and similar expenses.
This new tax is imposed on individuals, estates, and trusts with more than $1 million of net investment income in the tax year. The tax rate is 1% on the net investment income over $1 million.
Public Pension Income Subtraction
This bill provides for a subtraction for certain qualified public pension income, effective for tax years 2023 and later. Recipients or survivors may qualify for a subtraction if all of these apply:
- They earned public pension income.
- They did not earn credit toward Social Security benefits on this income.
- They are ineligible to receive Social Security benefits for the same service.
The subtraction amount is limited to:
- $25,000 for a married taxpayer filing a joint return or a surviving spouse
- $12,500 for all other filers
The subtraction phases out at these income thresholds, reducing it by 10% for each $2,000 of adjusted gross income exceeding the threshold:
- $100,000 for a married taxpayer filing a joint return or a surviving spouse
- $78,000 for a single or head of household taxpayer
Sexual Harassment or Abuse Settlements
The tax bill included two provisions related to sexual harassment or abuse settlements between an employer and an employee.
First, when there is a financial settlement provided, the financial settlement cannot be provided as wages or severance pay to the employee regardless of whether the settlement includes a nondisclosure agreement.
Second, an income tax subtraction is provided related to damages received for nonphysical injuries and sicknesses, such as emotional distress, humiliation, and defamation, as a result of an abuse claim.
Social Security Income Subtraction
The bill expanded Minnesota’s Social Security subtraction to allow taxpayers to subtract the greater of a new Simplified Method of calculating the subtraction or an Alternative Method (similar to the subtraction as calculated under prior law).
The new Simplified Method allows taxpayers with adjusted gross income (AGI) below $100,000 for married joint returns — or $78,000 for single or head of household returns — to subtract all taxable Social Security benefits. The subtraction phases out by 10% for each $4,000 of AGI over these thresholds. For married taxpayers filing separately, the phase-out is 10% for each $2,000 of AGI over $50,000.
The thresholds are indexed to inflation. Taxpayers can use the Alternative Method to calculate the subtraction amounts similar to prior law, if doing so results in a larger subtraction than the Simplified Method.
The effective date is tax year 2023 and later.
Standard and Itemized Deduction Limitation Changes
Filers with incomes over $220,650 will generally see fewer tax benefits from the standard or itemized deductions. For those with AGI more than $220,650, the reduction is the lesser of:
- 80% of the amount of the deductions
- 3% of AGI between $220,650 and $304,970, plus 10% of AGI greater than $304,970.
Those with adjusted gross incomes (AGI) greater than $1 million will have deductions reduced 80%, rather than using the calculation above.
These changes are effective for taxable years beginning after December 31, 2022.
Student Loan Discharge
The American Rescue Plan Act of 2021 (ARPA) allowed a broad exclusion from gross income for discharged student debt, effective for tax years 2021 to 2025. This bill adds the ARPA exclusion for discharged student loans beyond the timeframe covered by ARPA.
Unemployment Compensation Subtraction
This new subtraction for unemployment compensation affects a small population of teenagers and high school students who were initially denied unemployment benefits in 2020, but later received them in 2021 as a result of the Minnesota Court of Appeals decision.
Since the previous subtraction for unemployment benefits only applied to benefits received in 2020, these individuals did not qualify. This subtraction is only for recipients affected by the ruling.
The bill provides for an “interactive taxpayer receipt,” which will show the share of the state general fund represented by each expenditure category. Once complete, the receipt tool will allow a taxpayer to input their income amount and will provide an estimate of the amount of major state taxes paid by that individual taxpayer. It is anticipated that the receipt tool will be available for use on the Department of Management and Budget’s website.
Withholding Rate for Pensions and Annuities
The bill establishes a withholding rate of 6.25% (or a rate directed by the recipient) for periodic payments and nonperiodic distributions from retirement accounts such as annuities or IRA distributions on demand.
Angel Investment Credit
The Angel Investment Tax Credit was extended through tax year 2024, with an appropriation of $5 million per year.
Child Tax Credit
Enacts a child tax credit (CTC) equal to $1,750 per child under 18, with no cap on the number of children. This credit is phased out, along with an amended Working Family Credit, for those with incomes over $35,000 and married filing jointly, or $29,500 for other filers.
Dependent Care Credit – Newborn Credit
The language allows all taxpayers, including unmarried taxpayers, with a newborn child who do not have dependent care expenses to claim the newborn credit. This credit deems the taxpayer to have paid the maximum amount of expenses for one dependent for the purposes of the credit.
K-12 Education Credit
The bill made several changes to the K-12 Education Credit.
First, the bill clarified statutory language. Second, the bill simplified the definition of income that is used for purposes of the credit by using adjusted gross income rather than calculating household income.
Third, the bill made several changes to eligibility and credit amounts:
- Increased income eligibility from $33,500 to $70,000
- Increased credit amount from $1,000 to $1,500 multiplied by number of qualifying children
Added inflation adjustment to help credit keep pace with increased expenses
Tax Credit for Military Service
The bill makes the credit for military service available per calendar year.
Modified Working Family Credit
This bill allows a refundable credit equaling 4% of the first $8,750 of earned income for eligible Minnesota residents. The credit is increased by:
- $925 for a taxpayer with one qualifying older child (age 18 or older)
- $2,100 for a taxpayer with two qualifying older children
- $2,500 for a taxpayer with three or more qualifying older children
The Working Family Credit (WFC) is combined with the Minnesota Child Tax Credit (MCTC) and then phased out together at 12% of income above a certain income threshold.
If the taxpayer has a WFC that includes a qualifying older child and they did not qualify for the MCTC, the phase-out rate is 9% of income above the threshold. Filers with Individual Income Tax Identification Numbers (ITINs) are now able to claim the WFC.
The tax bill increases refund amounts for the 2022 Homestead Credit Refund (for Homeowners) and Renter's Property Tax Refund (Form M1PR):
- Refunds for homeowners and renters were increased by 20.572%. Taxpayers who already filed a 2022 Form M1PR may see a larger refund than originally claimed.
- Homeowners may now qualify for a special (or "targeting") refund if their property tax increased by more than 6% — rather than 12% — from 2022 to 2023.
The income requirements have not changed for claiming either the Homestead Credit Refund or Renter's Property Tax Refund.
How do I get the increased refund?
We’re updating our systems to automatically increase refunds on previously filed returns. We expect to start issuing the larger refunds in mid-July for renters and mid-September for homeowners.
If you have not filed 2022 Form M1PR yet: Review the 2022 Form M1PR instructions to see if you qualify for these refunds. If you qualify, complete the 2022 Form M1PR. For more information, see Filing for a Property Tax Refund. The final deadline to claim the 2022 refund is August 15, 2024.
If you filed a 2022 Form M1PR before June 14, 2023: It depends on how you filed your return.
|If you filed as a||Then|
|Renter, nursing home resident, or adult foster care resident||You do not need to do anything. We will increase your Renter’s Property Tax Refund by 20.572% and send you the additional refund automatically.|
|Homeowner or mobile home owner, and you claimed a Special Property Tax Refund when filing||You do not need to do anything. We will increase your Homestead Credit Refund by 20.572%, recalculate your Special Refund, and send you the additional refund automatically.|
|Homeowner or mobile home owner, and you did not claim a Special Property Tax Refund when filing||Review our updated 2022 Form M1PR instructions to see if you qualify for the special refund. If you qualify, file 2022 Form M1PRX, Amended Homestead Credit Refund (for Homeowners) and Renter’s Property Tax Refund, and complete the Special Refund section. For more information, see Amending a Property Tax Refund.|
|Homeowner or mobile home owner, and you do not qualify for the Special Property Tax Refund||You do not need to do anything. We will increase your Homestead Credit Refund by 20.572% and send you the additional refund automatically.|
The bill makes other changes to property tax refunds, including:
- Homestead Credit Refund — Homeowners who have an Individual Taxpayer Identification Number (ITIN), instead of a Social Security Number, can now qualify for homestead status for their residence and claim the refund.
- Renter's Refund — Starting with rent paid in 2024: Renters will claim the refund on their Minnesota income tax return (Form M1) in 2025. Owners and managing agents must provide a Certificates of Rent Paid (CRP) and submit CRPs to Revenue by January 31.
Direct Tax Rebate Payments
The tax bill included a one-time income tax rebate for tax year 2021. The credit equals $520 for a married couple filing a joint return and $260 for a single filer, head of household, or married taxpayer filing a separate return. If taxpayers have dependents, the credit is increased by $260 per dependent up to an additional maximum credit of $780. For details, visit Direct Tax Rebate Payments.
Electric-Assisted Bicycle Rebates
The Transportation Finance and Policy bill included a new electric bike rebate program that takes effect July 1, 2024. The credit maximum is $1,500. Individuals must assign the credit at time of purchase to an eligible retailer, reducing the cost of purchase. $4 million is appropriated for fiscal year 2024, with $2 million to be used in each of the 2024 and 2025 calendar years. The rebate is available until June 30, 2026.
Political Contribution Refund
The maximum refund was increased to $75 for an individual and $150 for a married couple filing jointly. The changes apply to refunds for contributions made on or after January 1, 2024.
Cannabis Income Tax Subtraction
Expands existing cannabis income tax subtractions to include non-medical cannabis license holders.
Composite Income Tax and Pass-Through Entity Tax Recodification
Conformity to Internal Revenue Code
The tax bill updates state tax law conformity to the Internal Revenue Code (through May 1, 2023) and includes the SECURE Act 2.0. Visit 2023 Federal Conformity for Income Tax for more details.
Corporate Net Operating Loss (NOL) Limit
Changes the corporate net operating loss (NOL) deduction limitation from 80% to 70% of taxable net income.
Dividends Received Deduction (DRD)
For dividends received by a corporation owning 20% or more of stock of another corporation, the deduction is reduced from 80% to 50% of the dividends received.
For dividends received by a corporation owning less than 20% of stock of another corporation, the deduction is reduced from 70% to 40% of the dividends received.
These changes will be reflected in the 2023 forms and instructions this fall.
Global Intangible Low-Taxed Income (GILTI)
Conforms generally to the federal treatment of Global Intangible Low-Taxed Income (GILTI), but not the federal section 250 deduction, and repeals the relating income tax subtraction modifications. Clarifies that GILTI will be treated as dividend income for the purposes of the corporate dividends received deduction and the sales factor. Visit Foreign Income for more information.
Nonresident Withholding Tax Refunds
Clarifies that overpayments of nonresident withholding tax are limited to the amount of overpayment that was not deducted or withheld from the shares of the partners or shareholders.
Pass-Through Entity Tax
The pass-through entity (PTE) tax was changed in the following ways:
- Expands eligibility by allowing partial elections if not all owners are qualifying owners.
- Requires 100% allocation to Minnesota for resident partners.
- Removes the requirement that one qualifying owner must be subject to the limitation on state and local taxes (SALT Cap).
- Provides for a special rule for Federal Adjusted Gross Income (FAGI) calculation for individual qualifying owners.
- Clarifies that PTE taxes paid to another state may qualify for the Minnesota Credit for Taxes Paid to Another State.
- Clarifies eligibility for a single member limited liability company (LLC) if the LLC is taxed as a partnership or S corporation.
Requires partnerships with federal audit adjustments to file an amended Schedule PTE.
Visit Pass-Through Entity Tax for more information.
Film Production Tax Credit
Extends the film production tax credit through 2030 and increases the annual appropriation from $4.95 million to $24.95 million. Also changes the $1 million expenditure threshold timeline to apply in any 12-consecutive-month period beginning with the first expenditure being paid, rather than by the taxable year. Visit Film Production Tax Credit for more information.
Historic Structure Rehabilitation Tax Credit
Extends the historic structure rehabilitation tax credit through fiscal year 2030. Also provides for a special rule to revive the credit for projects that started rehabilitation work after June 30, 2022, but before July 1, 2023, to apply for an allocation certificate if the application is received on or before August 30, 2023. Visit Historic Structure Rehabilitation Tax Credit for more information.
Manufactured Home Parks Credit
Enacted a new nonrefundable tax credit for sales of manufactured home parks to cooperatives. The credit is equal to 5% of the amount of the sale. Visit Credit for Sales of Manufactured Home Parks to Cooperatives for more information.
Owners of Agricultural Assets Tax Credit
(Beginning Farmer Program)
Increases the credit for sale of agriculture assets to 8% of the sales price, for a maximum credit of $50,000. For sales to emerging farmers, the credit rate is increased to 12% of the sales price.
Also allows for the sale of agricultural land to family members to qualify for the credit so long as the sales price of the land is equal to or greater than the assessed value of the land. Visit Owners of Agricultural Assets Credit for more information.
Short Line Railroad Infrastructure Modernization Tax Credit
Enacted a new nonrefundable tax credit for railroad infrastructure modernization of Class II or Class III railroads. Visit Short Line Railroad Infrastructure Modernization Tax Credit for more information.
Sustainable Aviation Fuel Tax Credit
The Transportation Finance and Policy bill included a new refundable tax credit for $1.50 per gallon of sustainable aviation fuel produced or blended in Minnesota sold for use in planes departing Minnesota airports. This tax credit will be available for fuel sold beginning July of 2024. Visit Sustainable Aviation Fuel Tax Credit for more information.
A recent law change legalizes adult-use cannabis in Minnesota and establishes a new Cannabis Tax. Sellers of taxable cannabis products must register and remit the new tax – along with state and local sales taxes – starting July 1, 2023. This includes sellers of previously legal cannabinoid products. For more information, see Cannabis Tax.
For details about the cannabis law, visit the Minnesota Office of Cannabis Management website.
Sales and Use Taxes
These construction exemptions were added:
- Chanhassen city hall and park amenities
- Chisholm Public Schools
- Duluth Public Schools
- Edina Community Health and Safety Center
- Ely Public Schools
- Hibbing Public Schools
- Maple Grove North Metro Regional Public Safety Training Facility
- Minneapolis – St. Paul Airport
- Moorhead library and community center
- Nashwauk-Keewatin Public Schools
- Northern Lights Academy
- Northland Learning Center
- Oakdale public works facility
- Ramsey water treatment plant
- Red Lake County School District
- Red Rock Central School District
- River Place Arts, Culture, and Event Center
- Rock Ridge Public Schools
- Spring Grove properties destroyed by fire
- Springfield School District
- Sustainable aviation fuel facility
- Wayzata city projects
Woodbury Central Park
Blood Center Exemption
Blood centers are added to the hospitals, outpatient surgical centers, and critical access dental providers exemption. Blood centers have an exemption for sales and purchases associated with blood collection and distribution centers. The exemption is retroactive to purchases made after December 31, 2019, and before January 1, 2028.
Car Sharing Exemption
Starting July 1, 2023, certain car-sharing programs are exempt from the 9.2% Motor Vehicle Rental Tax. The exemption also modifies which car-sharing programs are subject to the 5% Motor Vehicle Rental Fee.
County Agricultural Society Sales Exemption
Effective May 25, 2023, the exemption of sales by county agricultural societies during regularly scheduled county fairs is expanded to include pre-sales. The exemption does not apply to sales for county fair events held at a time other than the regularly scheduled county fair or for events not held on the county fairgrounds.
Firearm Storage Unit Exemption
Starting July 1, 2023, secure firearm storage units are exempt from sales tax. Secure firearm storage units are fully enclosed containers that are locked by padlock, keylock, combination lock, or similar locking device that is specifically designed for safe storage of firearms or is sold for that purpose by a federally licensed firearms dealer.
Mazeppa Fire Exemption
The date of the exemption for construction materials used to construct or replace property affected by the fire on March 11, 2018, has been extended to December 31, 2025.
Natural Gas Fee Exemption
Fees related to natural gas sold for residential heating during the period of February 13-17, 2021, are exempt from sales tax. The fee must be separately stated on a billing statement and labeled as a fee subject to the cost recovery plan.
Professional Sports Teams Amenities Exemption
The sale of amenities sold by a professional sports team that are included in the sales price of the privilege of admission to athletic events and places of amusement is exempt. Amenities include but are not limited to food, beverages, parking services, and promotional items. This exemption only applies to sports teams competing in:
- Major League Baseball
- Major League Soccer
- National Basketball Association
- Women’s National Basketball Association
- National Football League
National Hockey League
This is effective retroactively for sales and purchases made after June 30, 2022, and before July 1, 2030.
Season Tickets to Collegiate Events Exemption
It is no longer required to separately state the consideration paid for the right to purchase the privilege of admission in preferred viewing location from the admission price. This is effective retroactively for sales and purchases made after June 30, 2022.
Single-Member Limited Liability Company (LLC) Exemption
A sale between the sole member of an LLC that is a disregarded entity and the LLC is qualified for the sales tax exemption for tangible property used in a trade or business that is not in the business of selling that property. This is effective for sales made after June 30, 2023.
Suite License Exemption
It is no longer required to separately state the sales price for the privilege of admission. This is effective retroactively for sales and purchase made after June 30, 2022.
Veteran Motor Vehicle Exemption
Starting July 1, 2024, purchases of a motor vehicle by a veteran having a total service-connected disability are exempt from the Motor Vehicle Sales Tax.
988 Prepaid Wireless Fee
A prepaid wireless 988 fee is imposed on each retail transaction for prepaid wireless telecommunications service, effective July 1, 2023.
Motor Vehicle Excise Tax Increase
Starting July 1, 2023, the Motor Vehicle Sales Tax rate will increase from 6.5% to 6.875%.
Retail Delivery Fee
A fee of 50 cents is to be collected on retail deliveries in Minnesota that equal or exceed the threshold amount. This fee goes into effect July 1, 2024. The fee is collected once per transaction that meets the fee requirement thresholds, and there are fee exemptions. We will share more guidance on this fee before the end of the year.
For more information, see the Retail Delivery Fee section of the 2023 Sales and Use Tax Legislative Bulletin.
Definition of State
Starting July 1, 2023, the definition of “state” includes any territory of the United States.
Temporary Moratorium on New Local Taxes
The Minnesota Legislature approved a two-year pause on imposing new general local sales and use taxes or modifying an existing local sales and use tax under Minnesota Statutes 2022, section 297.99. During the pause, a Local Tax Advisory Task Force will evaluate local taxes and their ability to fund local government capital projects.
The moratorium does not apply to new local sales and use taxes or modifications to existing local sales and use taxes authorized in May 2023.
Metro Region Sales Tax – Housing
Starting October 1, 2023, there will be a 0.25% sales tax on sales and purchases in the seven-county metro area. The counties include Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington. The revenues from this tax will support housing projects in the metro area.
Metro Region Sales Tax - Transportation
Starting October 1, 2023, there will be a 0.75% sales tax on sales and purchases in the seven-county metro area. The counties include Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington. The revenues from this tax will support transportation projects in the metro area.
Authorized New Local Taxes
These local areas are authorized to impose a local sales and use tax if approved by voters at a general election:
- Beltrami County
- Brooklyn Center
- Cottage Grove
- Detroit Lakes
- East Grand Forks
- Golden Valley
- Jackson County
- Mounds View
- Rice County
- St. Joseph
- Stearns County
- Winona County
Authorized Local Tax Increases
The city of St. Paul is authorized to impose an additional 1% local tax if approved by voters at a general election.
Authorized to Extend Local Tax
These local areas are authorized to extend the length of time they may impose the tax or increase revenues raised, if approved by voters at a general election:
These local areas are authorized to extend the length of time they may impose the tax or increase revenues raised; voter approval may be required:
- Fergus Falls
- North Mankato
Authorized to Modify Special Local Taxes
Lake of the Woods County is authorized to modify its county lodging tax.
Local, County, and Tribal Governments
This year’s tax bill created a Local Taxes Advisory Task Force to explore how cities and counties use local taxes to fund projects and to recommend possible improvements.
Local taxes – which include sales, food, alcohol, and lodging taxes – must be approved by the Minnesota Legislature. Local sales taxes must also be approved by voters. The task force will review current laws and consider:
- Guidelines to evaluate proposed local taxes before lawmakers discuss and vote on them in legislative committees.
- What organization or entity should conduct these evaluations.
Improving the legislative approval process for creating and revising local taxes.
For upcoming meetings and other information, see Local Taxes Advisory Task Force.
2022 Tax Law Changes
No major tax bill was enacted during the regular 2022 legislative session, but two law changes during the session addressed:
- Bonus pay for eligible COVID-19 frontline workers (go to the Frontline Worker Pay website)
Unemployment taxes for businesses (go to the Unemployment Insurance website)
Frontline Worker Payments on Minnesota Tax Return
If you received a Frontline Worker Payment of $487.45 in 2022, it is taxable on your federal income tax return but not taxable on your Minnesota return. For more information, go to Frontline Worker Pay.
Tax Law Change FAQs for Businesses (tax years 2020 and 2021)