Extra! Extra! Special Edition!

Last week, after months of discussion, the Minnesota Legislature passed a series of tax changes. Several of these changes are due to “nonconformity”- when the Federal government allows tax deductions and credits that the State does not.  Some of the new tax changes also include tax cuts that benefit middle class families and businesses. Tax Team is always grateful when more money can go back to middle class taxpayers.  But the timing of this is difficult.  It is the end of tax season when many taxpayers have already completed their returns, and those that haven’t are anxious to get theirs finished.  Tax Team feels safe to say that there will be more tax confusion than usual.  All us will need to practice patience. 

There are ten major middle class tax cuts.  These include the mortgage insurance deduction, tuition and fees deduction, mortgage debt forgiveness, deduction for educator expenses and the ever-popular student loan interest deduction. Until last week these needed to be ”added back” to the state income, but now since they conform to the federal return those that did their returns previously will be refunded.  The changes to the Minnesota Family Working Credit are exciting.  This credit, which is similar to the Earned Income Credit on the federal return, helps low and middle income families who work.  The recent change on the state credit expands the upper earned income limits of the credit for married couples. 

Now some of you are wondering, “what should I do if I have already filed my return and I have one of these items?”  The State wants you to know one of three things will happen: 1) the State will adjust your return and send you a letter explaining the change, 2) the State will send you a letter asking for more information or 3) the State will ask you to amend the return.  If you have a balance due, the State would like you to pay it as usual, and they will make the adjustment, and if needed send you a refund.  The State will also try to prioritize the adjustments according to need; an example would be taxpayers who owe large amounts of money due to mortgage forgiveness.  The important thing to remember is that your action is to wait patiently; the state will eventually contact you. 

In tax preparation there are always exceptions.  The exception here is the Family Working Credit.  Unless the taxpayer has one of the other changes, and/or has already claimed the credit, the State will not be able to identify new families who would benefit from the tax break.  The earned income perimeters for the credit are for married couples without children $8,000-$19.600,for one child $20,800-$43,100 and for two children $43,000 to $48,000.  If you think you may qualify for the credit, please contact a tax professional for guidance. 

What if you have not filed your return yet? If you benefit from the tax changes you will need to wait until the State and the vendors have made the necessary software changes.  The estimated deadline is April 3rd.  If you are not affected by the changes, go ahead and file.  Tax Teams knows it is difficult for those who will benefit to wait. But it is better to wait for a few days now, than to wait because your return is held up because of outdated software and forms. 

This is just a summary of the tax changes.  For more information go to the Minnesota Department of Revenue website.  At the bottom left of the home page is an orange link to “Tax Changes” Good luck to all!  We will get through this! 

For help with the tax changes or other tax concerns contact John Lawless at 651-343-0899 or www.taxteam1.com.