Improving the Working Family Tax Credit

The Minnesota Budget Project supports improvements to Minnesota's Working Family Credit so that low- and moderate-income Minnesotans do not pay more than their fair share in taxes.

Issue Overview

Minnesota's Working Family Tax Credit encourages work, makes the tax system fairer, and helps working people meet basic needs and support their families. This income tax credit is based on a family's earnings and family size, and can only be claimed by people who work. It is based on the federal Earned Income Tax Credit (EITC), which has documented success in supporting work, reducing poverty, and improving the health and educational success of children.

The Working Family Credit makes the tax system more fair because it offsets a portion of the substantial state and local taxes that lower-income working people pay. But there is more to do: even when including the impact of the current Working Family Credit, low- and moderate-income Minnesotans pay more of each dollar of their incomes in state and local taxes than the highest-income households.

We encourage Minnesota policymakers to make two improvements to the Working Family Credit this session in order to make the tax system more fair and help low-wage workers support their families.

  • Increase the Working Family Credit for the more than 330,000 Minnesota families who receive it.
  • Update the Working Family Credit to conform to federal improvements to the EITC that reduce marriage penalties. Conforming to federal changes makes things simpler and less confusing for taxpayers by keeping Minnesota's eligibility rules aligned with federal rules.

These are small investments that would make a big difference for working families.

Status

The Minnesota Legislature made important improvements to the Working Family Credit in House File 1777, which passed the House and Senate on March 21, 2014. This bill conforms the credit to federal improvements reducing marriage penalties starting with tax year 2013, and increases the maximum credit starting in tax year 2014. The combination of these two improvements represents about a 25 percent increase in the Working Family Credit. These provisions take an important step forward in making the tax system work better for Minnesota's working families. They were originally introduced as Senate File 2484 (author Senator Kari Dziedzic) and House File 3200 (author Representative Diane Loeffler).

Support for the Working Family Credit was strong in the 2014 Legislative Session. A provision to update the Working Family Credit to address marriage penalties starting in tax year 2013 passed the Minnesota House of Representatives on March 6, 2014, as part of House File 1777 (author Representative Ann Lenczewski). An estimated 53,700 Minnesota families headed by married couples would benefit by an average of $334.

Similar Working Family Credit federal conformity provisions were included in House File 1959 (author Representative Greg Davids), House File 2014 (author Representative Sarah Anderson), House File 2106 (author Representative Ann Lenczewski), House File 2187 (author Representative Pat Garofalo), House File 2454 (author Representative Greg Davids) and Senate File 2388 (author Senator Rod Skoe).

Senate File 1841 (author Senator Ann Rest) and House File 2735 (author Representative Jim Davnie) updates Minnesota's Working Family Credit to match federal improvements addressing marriage penalties starting in tax year 2014.

Governor Dayton included improving the Working Family Credit in his supplemental budget proposal, which articulates his priorities for the 2014 Legislative Session.

More Information

Staff contact: Nan Madden, Minnesota Budget Project Director, 651-757-3084

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