By Don Davis
Minnesotans entitled to share in $49 million of new individual income tax breaks should wait a week and a half to file tax returns, state revenue officials say.
“It will allow them to get their refunds quicker,” Assistant Revenue Commissioner Terri Steenblock said Monday.
If taxpayers who qualify for one of 10 new breaks file returns now, Revenue Commissioner Myron Frans added, it could be months before they get their refunds. If they wait to file until April 3, tax officials expect software and tax preparers to be ready to handle law changes state legislators and Gov. Mark Dayton approved Friday.
April 15 remains the income tax deadline.
On Friday, Frans urged people to wait until Monday to file returns if they might qualify for new tax breaks. On Monday, he and Steenblock said that waiting for everything to be ready is in the best interest of taxpayers and their department.
Steenblock said that even if taxpayers wait until April 3 to file, “we cannot guarantee every software vendor will be able to update their software.”
After April 3, she said, taxpayers filing returns electronically via software that does not include updates from the new law will be notified quickly that their returns were rejected. Returns will not be rejected if filed before April 3, but any refunds due taxpayers could be delayed for months.
Frans said he hopes to have a better idea Thursday about how long his department will need to finish the work reviewing tax returns for missed breaks.
In many cases, Revenue Department employees hope to make changes themselves and increase refunds for those who qualify, without taxpayers taking any further action. In other cases, the department will notify taxpayers they must file an amended return to take advantage of the law.
“This is a very complex task we are undertaking,” Steenblock said.
Steenblock said the Revenue Department is working to change tax forms and instructions and briefing software venders on the changes. Next, she said, internal department processes will be updated, eventually followed by the department reviewing returns already filed to see if taxpayers may qualify for the new tax cuts.
The tax bill lawmakers passed and Dayton signed on Friday set aside $1 million for the department to undertake the job.
While tax cuts overall amounted to $443 million, just $49 million of them affect individual income tax returns being filed now.
“About 1 in 10 taxpayers probably will be able to benefit,” Frans said, meaning that up to 275,000 people will split the $49 million in new tax breaks.
Taxpayers who do not qualify for the new tax breaks can go ahead and file returns now.
Frans said that he expects Minnesotans to have a lot of questions, so his department is increasing the number of operators at its call center: (651) 296-3781 and (800) 652-9094.
Minnesotans will benefit from two tax changes when filing returns next year, Frans said.
A working family credit for people earning up to $40,000 a year was expanded a bit this year, but Frans said that it expands much more next year.
Also, he said, about half of Minnesota taxpayers will benefit next year from a change in how the state treats married couples. The change comes when the state conforms to federal law that gives married couples a tax break.
New Minnesota tax breaks
Minnesotans may take advantage of 10 newly enacted tax breaks. All are designed to more closely match state tax law with federal law, which results in taxpayer savings.
— Working family credit: New law moves the credit closer to the federal earned income tax credit for families earning $25,000 to $40,000 annually.
— Mortgage insurance deduction: Minnesotans making less than $110,000 a year may deduct mortgage insurance premiums.
— Mortgage debt forgiveness exclusion: Homeowners whose mortgage lenders agreed to accept less than they owed on their homes may exclude the amount of debt the lender forgave.
— Educator expenses deduction: Kindergarten through 12th grade school employees who buy classroom supplies with their own money may deduct up to $250 of the purchases.
— Higher education tuition deduction: Those who paid tuition and fees to a post-secondary school may be able to deduct up to $4,000 if income is below $80,000 for individual returns or $155,000 for joint returns.
— Student loan interest deduction: Students may be able to deduct up to $2,500 of student loan interest if returns show incomes below $75,000 for individual returns or $155,000 for joint returns.
— Education savings account exclusion: Taxpayers with a child in grades K-12 who used distributions from a Coverdell Education Savings Account may exclude those payments from income.
— National Health Corps scholarship exclusion: Taxpayers who received a National Health Service Corps scholarship or Armed Forces Health Professions scholarship and financial aid may be able to exclude those payments from income.
— Employer-provided education, adoption and transit assistance exclusion: Those whose employers provide education, adoption and transit assistance may be able to exclude some of those benefits from income.
— Tax-free individual retirement account exclusion: Taxpayers 70.5 years old and older who donate to charities from their IRAs may exclude up to $100,000 from income.
More information is available at www.revenue.state.mn.us. Click on orange “tax law changes” button to reach a page with several fact sheets.