Legislation to provide tax breaks for families trying to save for future higher education expenses and bring down the cost of student college loan debt was heard this week. The bill reinstates a state match of up to $500 for families enrolled in Minnesota’s 529 College Savings Plan.
The tax incentives are part of a broader package of bills to address the growing cost of student loan debt in Minnesota. The average Minnesota graduate has over $31,000 in student loan debt, the third highest in the nation. In addition, more than 70% of Minnesota graduates leave college with student loan debt, which is the fifth highest percentage of students nationally.
Beginning with Tax Year 2015, this bill would allow up to $3,000 in contributions (or $1,500 if not filing married/joint) made to a Minnesota college savings plan to be subtracted from federal taxable income. The contributions must be made to Minnesota’s 529 plan; amounts rolled over from other college savings plans would not qualify for the subtraction (people are not required to establish plans in the state in which they live; many Minnesotans do not have Minnesota plans).
In addition, this bill establishes a new tax credit of up to $500 for qualified contributions to Minnesota’s college savings plan. The credit is scaled based on income:
For those earning 150% or less of Federal Poverty Guideline (FPG) (married filing joint, family of four: $36,375 a year): 200% of the contribution made to a Minnesota college savings plan
- 150-200% of FPG: 100% of the contribution made to a Minnesota college savings plan
- 200% of FPG – $80,000: 50% of the contribution made to a Minnesota college savings plan
- $80,000-$100,000: 25% of the contribution made to a Minnesota college savings plan
- $100,000-$120,000: 10% of the contribution made to a Minnesota college savings plan
- $120,000-$160,000: 5% of the contribution made to a Minnesota college savings plan
The incomes are adjusted for inflation. The credit is not refundable, but it is transferable – any unused portion of the credit is required to be deposited into the taxpayer’s college savings plan. This is really valuable, especially to lower income earners that often don’t have any tax liability and, therefore, cannot take full advantage.
The amount of the state match would be dependent on income level and investment. The state match can only be used when attending a Minnesota higher education institute or at a college which offers reciprocity to Minnesota students. The bill passed the Senate Higher Education and Workforce Development Budget Division and was re-referred to the Tax Committee. (S.F. 293)