ST. PAUL, MINN. (WCCO) — The Minnesota House DFL’s budget includes new income tax bracket for top earners in the state, and some tax relief for small businesses that got Paycheck Protection loans and Minnesotans who received jobless benefits.

The tax plan, released Monday, is part of their $52.5 billion spending proposal for the next two-year budget the legislature will need to pass before session adjourns.

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“Many who are rich and well connected, and who are just plain fortunate, are doing better than ever after this pandemic, and they can afford to be part of the long-term investment that Minnesota needs,” said House DFL Majority Leader Ryan Winkler during a Monday news conference.

The proposal creates a fifth tier income tax bracket at 11.15%, which would impact the following:

  • $1,000,000 for married taxpayers filing joint returns and surviving spouses.
  • $500,000 for single taxpayers and married taxpayers filing separate returns.
  • $750,000 for head of household taxpayers.

If approved, the changes would apply to tax year 2021 and onward. But Republicans who control the Senate say they refuse to approve any tax increases, citing a projected $1.6 billion budget surplus and federal stimulus money soon to be flowing to the state.

The political divide between legislative leadership over the budget underscores the challenges that will likely draw out negotiations in the final weeks of session.

“That’s the last thing we need right now,” said Senate Majority Leader Paul Gazelka, R-Nisswa. “In Minnesota, we’re one of the highest tax states in the whole country, yet Democrats in the House say ‘we need more.’”


(credit: CBS)

The Senate GOP budget proposal would not increase any taxes and spend $51.9 billion in the next biennium, slightly less than the DFL budget. Republicans would make 5% cuts to state government administrative costs, which House Speaker Melissa Hortman was swift to condemn on Monday, calling it a “nonstarter.”

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“Minnesota Senate Republicans have substantial cuts all across state government at a time when we are unquestionably relying on our state employees more than ever,” said Hortman, DFL-Brooklyn Park. “Does the name Kris Ehresmann ring a bell? Does the name Jan Malcolm ring a bell? This is not a time to be cutting state government.”

Gov. Tim Walz in his revised budget proposal dropped several of his proposed tax hikes, but the fifth tier income tax bracket remains.

Some PPP loan relief and unemployment benefits tax exemption

The House DFL tax bill matches Gov. Walz’s plan that would make up $350,000 of federal Paycheck Protection Program loans businesses received in 2020 exempt from state taxes.

Walz’s office contends that 90% of those loans in Minnesota were under that amount.

The Senate approved a bill that would allow all of those PPP loans tax free. It also allowed up to 18% of jobless benefits to be subtracted from tax liability for people making up to $150,000.

That’s different than the House DFL proposal, which allow subtraction of up to $10,200 in unemployment from state taxes. Gov. Tim Walz supports this approach.

The tax exemptions for PPP loans and unemployment insurance payments would impact 2020 taxes, which have a filing deadline extension until May 17. 

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Editor’s note: An early version of this story had incorrect numbers for the fifth tier tax bracket to reflect an earlier version of the proposal. The bill has since been updated, and so has this story.

Caroline Cummings