Prioritizing Everyday Minnesotans in State Tax Decisions

Supporting Minnesotans' work efforts should be a priority in the state's tax and budget decisions. The Minnesota Budget Project supports strengthening the Working Family Credit so that working people across the state can better make ends meet, and to get children off to a stronger start in life. Expanding the Working Family Credit would also make Minnesota's taxes fairer.

Issue Overview

Every day, hard-working Minnesota families struggle to make ends meet. Tight family budgets make it hard for Minnesotans to pay for child care, education and training to build their skills, reliable transportation and other things they need to succeed in the workplace and get ahead. 

Fortunately, there is a successful tax policy that focuses on working Minnesotans and their families. The Minnesota Working Family Tax Credit encourages and supports work, makes Minnesota's taxes fairer, helps working people across the state meet their basic needs, and gets children off to a stronger start. In 2014, about 346,000 households received the Working Family Credit, which is more than 12 percent of all tax-filing households.

The Working Family Credit effectively reaches those communities where good jobs are harder to find, including parts of Greater Minnesota and communities of color.

  • 48 percent of households currently receiving the credit are in Greater Minnesota, and in 12 Greater Minnesota counties, at least one in six tax-filing households receive the credit.
  • map of minnesota percent of households receiving working family creditWhile people of color made up about 18 percent of the state's population, roughly 34 percent of those eligible for the credit in 2015 were people of color.

The Working Family Credit offsets a portion of the substantial state and local taxes, such as sales taxes, that lower-income working people pay. Even including the Working Family Credit, on average, lower-income Minnesota households pay 11.5 percent or more of their incomes in state and local taxes.

The Working Family Credit is Minnesota's version of the federal Earned Income Tax Credit (EITC) and builds on the EITC's documented success in supporting work, reducing poverty and improving the health and education of children.

There is also bipartisan interest at the federal level to improve these credits for workers without dependent children. As they are currently structured, these credits don't do as much to support the work efforts of single people and married couples without dependent children - sometimes called "childless workers." Three reasons to improve the credit for these Minnesotans are: these workers receive credits that are very small; these workers lose eligibility for the credit at very low incomes (for example, a single Minnesotan working full-time, year-round earning minimum wage makes too much to qualify for the credit); and arbitrary age requirements mean independent workers under age 25 cannot qualify.

The Minnesota Budget Project calls on policymakers to:

  • Increase the size of the Working Family Credit that Minnesota households can receive;
  • Make more households eligible for the credit by increasing the amount that Minnesotans can earn and still receive the credit; and
  • End arbitrary age requirements for households without children so that younger, independent workers (ages 21 to 24) can qualify for the credit.

These three recommendations were included in both Governor Mark Dayton's budget proposal and Senate File 28 (chief author Senator Ann Rest)/House File 516 (Representative Diane Loeffler). The proposed recommendations would increase the size of the credit for most currently eligible households; increase the incomes households can earn and receive the credit; and lower the age requirement for workers without dependent children to 21 years. In total, this package of recommendations would provide $46 million in increased tax credits to about 372,000 Minnesota households in FY 2018.

Status

The 2017 omnibus tax bill enacts important improvements to the Working Family Credit:

  • Younger workers and married couples without dependent children will be able to qualify for the credit at age 21, starting in 2019. Approximately 41,500 households will benefit from this provision.
  • Native Americans will be able to count their on-reservation earnings as income for purposes of the Working Family Credit. This addresses a barrier faced only by members of this community; about 1,600 households are estimated to benefit. These provisions were introduced as House File 513 (Swedzinski)/Senate File 646 (Bakk).

In addition, other tax legislation passed early in the session to "conform" Minnesota's tax code to federal changes included an important provision to protect the Working Family Credit for some families headed by married couples; without this provision, these families would have seen a cut to their tax credits starting in 2018.

More Information

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

Our work on expanding the Working Family Tax Credit in 2017 is supported in part by a grant from the Emma B. Howe Memorial Foundation of The Minneapolis Foundation.

Donate Now 

With your support, we will continue to work towards a future where all Minnesotans have access to opportunity and economic well-being.

Donate Now »