ST. PAUL, MINN. (WCCO) — Legislative leaders and Gov. Tim Walz on Monday announced a budget agreement that includes tax relief for small businesses that received federal loans, and Minnesotans who received extra jobless benefits in 2020. But the state’s tax agency says it’s still reviewing how it would implement any law change.

The proposal would exempt all forgiven Paycheck Protection Program loans from taxable state income for the more than 105,000 small businesses in Minnesota that benefitted from the assistance, which was designed to help people keep their jobs during the pandemic.

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It would also make up to $10,200 in extra federal jobless benefits tax-free for Minnesotans who were out of work and made $150,000 or less last year.

Both of these provisions conform to the federal tax law on the issue. Without passing anything in the legislature, Minnesota would be in a minority of states that have not yet match the federal government.

But with the extended tax deadline falling Monday, the day of the announcement, Minnesotans have already filed or will need to file their taxes under the current law taxing PPP loans and extra unemployment insurance.

“There’s predictability in what they will get at the end of the day, the mechanics of whether they will have to refile a return or not is a question we can answer later,” said House Speaker Melissa Hortman, DFL-Brooklyn Park, during a news conference announcing the budget agreement.

A Department of Revenue spokesman in an email said that if the legislature passes this proposal during its June special session, as is expected, the agency will review the law and determine if it can make adjustments automatically on submitted returns.

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“If we are not able to make the adjustments automatically, we will communicate that to the impacted taxpayers and encourage them to file an amended return so they can access any refund they may be entitled to because of the law change,” the spokesman said.

According to state data, an estimated 534,000 Minnesotans, of more than 820,000 who received unemployment benefits last year, owe taxes on the payments.

Exempting PPP loans and extra unemployment insurance from taxes totals more than $640 million. There is an additional $110 million for more tax relief to be sorted before the legislature formally approves a budget next month. Minnesota is covering the cost through a deluge in federal money to state government from the American Rescue Plan.

“As we began the year, we just, we said look, we’re not gonna raise taxes. We’re gonna focus on recovering from COVID. We’re gonna pay attention to what families need,” said Senate Majority Leader Paul Gazelka, R-Nisswa. “And I feel like this agreement on the spending targets fits all of that.”

House Minority Leader Kurt Daudt, R-Crown, criticized not passing the agreement on PPP loans and unemployment insurance before both chambers adjourned for the regular session Monday afternoon, calling the decision an “abject failure.”

Lawmakers have until 11:59 p.m. Monday before they are compelled by law to end the session.

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“Here we are with hours left to get that work done, and Democrats literally threw those Minnesotans who were displaced workers, they literally threw them under the bus and then backed the bus right over them today,” Daudt said.

Caroline Cummings