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Minnesota Conformity Bill Summary

Minnesota Conformity Bill Summary

July 8, 2021 - On July 1, 2021, Governor Walz signed a bevy of new bills into law, including both a $52B budget bill and a tax bill that benefits many Minnesota business and individual taxpayers. Below is a summary of some of the provisions in the bills:

  • Paycheck Protection Program (PPP) loan forgiveness is treated as tax-exempt income and the corresponding expenses are deductible.
  • Unemployment benefits up to $10,200 are excluded from income.
  • Economic Injury Disaster Loan (EIDL) grants are excluded from income.
  • SBA loan repayment assistance is excluded from income.
  • Pass-Through Entity Tax (summary below).

Pass-Through Entity Tax

As a result of the new law, partnerships, limited liability companies, and S corporations now have the option to pay the Minnesota state tax liability for their entity income as though they were a C corporation. This election allows the owners of electing entities to deduct their Minnesota taxes at the entity level rather than on their individual returns which lessens the impact of the $10,000 state tax cap on their individual tax returns.

Some specifics of the new Pass-through entity tax election are as follows:

  • Effective for tax years beginning after December 31, 2020.
  • Tax is paid by the qualifying entity at the highest individual income tax rate, 9.85%.
  • Annual binding election made on or before the due date (including extensions) for filing the pass-through entity’s return by qualifying owners that hold more than a 50% interest in a qualifying entity.
  • Qualifying owners include:
    • Resident and nonresident individuals or estates.
    • Resident and nonresident trusts of an S corporation.
  • Qualifying entities cannot have entity owners and must be a partnership, limited liability company, or S corporation.
  • Qualifying owners calculate the tax basis of their respective interest as if the entity did not make the pass-through entity tax election.

This new entity-level taxation option puts Minnesota in a growing list of states that have changed their laws to allow “pass-through” entities to elect to pay the entity state tax liability at the entity level rather than the individual level to lessen the impact of the $10,000 state tax cap on itemized deductions.

Additional information will be provided as additional details become available. The Minnesota Department of Revenue is still trying to determine what if anything is required from taxpayers. Depending on the complexity of the adjustment the Department will either adjust your return and issue refunds or require the filing of amended returns.

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