MINNEAPOLIS (WCCO) – Minnesota is just one of 13 states that tax Social Security benefits. On Thursday, Minnesota Senate Republicans announced a plan to do away with that.
“It’s a punishing tax, we’ve already paid tax on it once,” said Sen. Roger Chamberlain (R-Lino Lakes), chair of the Senate tax committee. “The goal is to reduce the burdens on all Minnesotans so they can stay here, work here, create a productive life here and drive this economy.”READ MORE: COVID In Minnesota: 3 Deaths, 882 New Cases Reported; 52% Of Minnesotans 16 And Older Are Fully Vaccinated
Dennis, Mark, Steven and Ruth all e-mailed WCCO to ask: Why does Minnesota tax Social Security benefits? Good Question.
“Because it’s income and we tax income in the state of Minnesota,” says Jay Kiedrowski, a fellow at the University of Minnesota’s Humphrey School who teaches public finance.
Minnesota’s tax system is a progressive one so the percentage someone pays on their Social Security benefits depends on how much they make. Higher earners pay more. According to the Minnesota Department of Revenue, about half of the people who receive Social Security benefits don’t pay taxes on them.
Minnesota will tax up to 85% of Social Security income for the highest earners and 50% for middle-income earners. People who earn less than $25,000 pay no state Social Security taxes in Minnesota.
On average, that means Minnesotans with less than $23,900 household income pay no tax on their Social Security income. For households with less than $57,700 household income, 18.5% of Social security income is taxable. For households with more than $57,700, 65.5% is Social Security is taxable on average.READ MORE: Teen Falls 5 Stories In Fruen Mill, Seriously Injured
Minnesota began taxing Social Security benefits in 1985 after the federal government began taxing them at the federal level.
“It was simply conformity with the federal tax code, which we did in those days routinely,” said Kiedrowski.
If Minnesota were to stop taxing Social Security benefits entirely, Senate Republicans say that would save Minnesota taxpayers $430-million.
Currently, that $430-million goes into the general fund, which is about $25-billion per year in Minnesota.
The AARP says it has fought to reduce the taxes on Social Security in Minnesota, but doesn’t support a full exemption for everyone.
“We have to consider people’s ability to pay, but also produce revenue necessary to sustain important programs seniors depend on as well,” says Mary Jo George, Associate State Director of Advocacy and Outreach at AARP Minnesota.MORE NEWS: 'Absolutely Check Your Policies': Breezy Point Couple Learns COVID's Effect On Insurance The Hard Way
In 2017 and 2019, Minnesota did cut taxes slightly on Social Security benefits, so state rates are now lower than federal ones.