Expanding tax relief for Minnesota seniors
The Minnesota Legislature approved a new tax subtraction for a portion of Social Security tax benefits in 2017. It is generally available to seniors earning less than $100,000 in provisional income (income plus one-half of Social Security benefits) and was meant to provide some tax relief to the state’s growing senior population. Beyond this new subtraction, a minimum of 15% of Social Security benefits are fully tax-exempt for all beneficiaries in Minnesota because the state aligns with federal tax treatment. More than half of Social Security recipients pay no taxes on their benefits.
About 746,000 Minnesota households receive Social Security income, but another 23,600 seniors receive pension benefits from positions that were not eligible to participate in Social Security. Many of them were firefighters, police officers, state troopers, teachers, or federal employees. Their retirement benefits are structured very similarly to the federal program – they receive cost of living increases, not benefits based on investment earnings – but do not receive the state’s Social Security tax benefits because their retirement income is not linked to that program.
The Senate Tax Committee considered a bill this week to provide equitable tax relief to these public servants. The bill would create a tax subtraction for their specific pension income and would also be based on income, focusing the relief most heavily on lower- and middle-income seniors. The bill was laid over for possible inclusion in the omnibus tax bill. (SF 151)