Social Security tax eliminated under Minnesota lawmakers' deal

SAINT PAUL (FOX 9) - Minnesota lawmakers have agreed to eliminate the state's tax on Social Security income, cut individual income taxes, and expand the renter's credit under an end-of-session deal.

The tax breaks total $4 billion over three years. They do not include direct rebates that became known as "Walz checks" because of Gov. Tim Walz's support for them.

The leaders of the House and Senate tax committees signed the deal in front of reporters Saturday afternoon, before noting the elephant in the room: it won't pass until lawmakers agree to several spending measures before their Sunday night deadline.

"We did our job. We did the $4 billion tax relief. We did it in a way that impacts all Minnesotans," Senate Taxes Chairwoman Carla Nelson, R-Rochester, told reporters. "It would be shameful if this got lost in other negotiations." 

The Social Security exemption represents the biggest chunk of the tax bill, at more than $500 million per year. It will benefit retirees with significant investment or pension income. Social Security is already exempt from state taxes for lower-income retirees. 

More than 410,000 tax filers will benefit from an average savings of $1,253 per year, according to a February estimate from the state Revenue Department.

"For the first time in almost 40 years, senior citizens will not pay one dime of tax on their Social Security benefits," said House Taxes Chairman Paul Marquart, DFL-Dilworth.

The state's bottom income tax bracket will be cut from 5.35% to 5.10%. All tax filers pay the bottom rate on the portion of their income up to $41,050 for married couples and $28,080 for singles in tax year 2022. 

It will generate a savings of roughly $100 per year for the average family, or $4 per biweekly paycheck, one-tenth the size of the original proposal from Senate Republicans. Employers could adjust tax withholding this summer if the bill passes, lawmakers said.

The renter's credit will become refundable, meaning that Minnesota renters who owe no income tax will still be eligible for the credit. More people will qualify because some forms of income, such as Social Security, would no longer count against the $64,920 annual income cap.

Lawmakers said up to 120,000 additional people could apply for the renter's credit under the changes.

Walz has pushed all session for $500 per adult rebate checks to be included. But neither party showed much interest in that proposal all session.

"I have no idea why the governor proposed a one-time check for everybody," said state Sen. Tom Bakk, I-Cook, who was on the taxes conference committee. The rebates would have been subject to federal taxes, which would have left people "pretty darned upset," Bakk said.

Making details of the tax bill public could increase pressure on lawmakers who are struggling to reach other end-of-session deals. House leaders have vowed not to pass the tax cuts until K-12, public safety and other agreements are done.

The disagreements over $1 billion in new funding for public schools have been especially contentious. Senate Education Chairman Roger Chamberlain ended a Saturday morning conference committee meeting as his House counterpart, state Rep. Jim Davnie, was asking questions. 

"I don't know what else to do. We don't have days and days. We hardly have hours," said Chamberlain, R-Lino Lakes.

The Senate favors using $59 million for literacy programs and $941 million to address a funding gap for mandatory special education services. In addition to those measures, the House wants to add mental health services and a provision that makes hourly school employees eligible for unemployment benefits.

Walz has vowed not to call a special session, but it's becoming increasingly unlikely that lawmakers can address the several outstanding issues on time. The divided Legislature faces a deadline of 11:59 p.m. Sunday.

The House GOP and Senate DFL minorities have been largely cut out of the negotiations.

Senate DFL Leader Melisa Lopez Franzen said it was "premature" to say whether Walz should call a special session so that lawmakers could read the bills before voting on them.

"I literally brought my suitcase and am ready to be here until tomorrow to get it done," said Lopez Franzen, DFL-Edina.