Minnesota won't tax the rebate checks that were sent to households this fall, but the federal government will.
The IRS recently determined the checks will be considered federally taxable income, despite a push from state officials to get the rebates treated the same as untaxed pandemic-era relief payments in other states.
"Minnesota is being treated unfairly on this. They picked an arbitrary date to end the emergency," said Gov. Tim Walz, who added that he's been pushing the IRS to reverse the decision. "Every other state was afforded this and they say we have to have a red line in the sand. I'm deeply disappointed."
The federal government ended the COVID health emergency May 11. Legislation authorizing the rebate checks was signed May 24. "Simply, it's not right," added Walz, who called the decision "bullshit."
The federal tax on the checks could cost between $26 and $286, depending on a household's income and how much was received in rebates, according to an analysis from the Department of Revenue, first reported by MPR News.
The rebates were part of a $3 billion package of tax cuts and increases passed last session. Individual Minnesotans were eligible for a $260 rebate check if they had a gross adjusted income of up to $75,000 in 2021, and $520 for married filers who earned up to $150,000. Families could get an additional rebate check for up to three dependents, for a maximum of $1,300.
Rep. Kristin Robbins, R-Maple Grove, said Minnesotans initially anticipated $2,000 rebate checks, as proposed by Walz in 2022. The rebates shrunk to $260 during the legislative session and now they are being taxed, she said.
"This just adds insult to injury," she said.
The state will now send a form to all rebate recipients to use when filing their federal individual income tax returns next year.
"If they include this payment in their federal adjusted gross income, they should subtract it from their Minnesota taxable income on line 33 of Schedule M1M on their Minnesota return," according to the Department of Revenue.
The department estimates 18% of rebate recipients don't have a federal tax liability.
Star Tribune staff writer Rochelle Olson contributed to this story.