July 1st Update

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Starting today, a number of tax-related changes agreed to during the last legislative session go into effect, along with the effect of one key U.S. Supreme Court ruling.  Below is a summary of the key points.

  • The new, 9.85% top Minnesota tax rate went into effect, but is retroactive to January 1st, 2013. Those that are single with taxable income of more than $150,000, and married couples with more than $250,000 in taxable income will see the new 9.85% rate imposed on income over those amounts. This also points to a significant marriage penalty, since two single people can earn $50,000 more than a married couple before the new tax kicks in.
  • Starting with Minnesota tax refunds issued in 2014, those not choosing direct deposit will instead be issued a prepaid debit card; paper checks will no longer be issued.
  • The following items paid by an employer on behalf of an employee will now be subject to Minnesota income tax (these items are still exempt on the Federal level, but starting January 1, 2013 not for Minnesota). In these cases, Box 16 of the employee’s 2013 W2 will likely exceed Box 1.
    • Up to $5,250 of education expenses for education not directly related to the employees job. This includes many tuition reimbursement programs.
    • Up to $12,970 of adoption expenses paid on behalf of an employee or reimbursed to them.
    • Transit passes and vanpool expenses in excess of $125 per month.
  • The U.S. Supreme Court overturned the Defense of Marriage Act (DOMA), which clears the way for same-sex couples that are legally married in their state of residence to file joint tax returns. Beginning August 1st, 2013, same-sex couples will be allowed to marry in the State of Minnesota, allowing them to file jointly on both the Federal and State tax returns, which simplifies the process significantly. Those couples with income from states other than those that allow same-sex marriage will still face significant hurdles to correctly filing in multiple states.

We’re working hard to keep up on the changes as they come about, including the impending enactment of most of the Affordable Care Act.