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. More than 330,000 households received the Working Family Credit in 2015, the most current year for which detailed information is available. That means more than 12 percent of all Minnesota households filing state income taxes benefit from the Working Family Credit.

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

  • 49 percent of households receiving the credit live in Greater Minnesota.
  • 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 has been bipartisan interest at the federal level and increased attention in many states in improving EITCs for workers without dependent children. As they are currently structured, these tax credits don't do as much to support the work efforts of single people and married couples without dependent children - sometimes called "childless workers." That's because these workers receive tax credits that are very small; these workers lose eligibility for the tax credit at very low incomes (for example, a single Minnesotan working full time, year round, and earning the minimum wage makes too much to qualify); and arbitrary age requirements mean independent workers under age 25 cannot qualify. Minnesota policymakers enacted legislation in 2017 that would allow workers without children to qualify for the Working Family Credit at age 21, which goes into effect in tax year 2019.

Status

No changes to the Working Family Credit were enacted in the 2018 Legislative Session.

Governor Mark Dayton's 2018 tax proposal contained a Working Family Credit expansion package that would benefit 329,000 Minnesota households by an average of $160. The proposal would have:

  • Increased the size of the credit that most currently-eligible workers and families can qualify for;
  • Made more workers and families eligible by increasing the maximum income they can earn and qualify for the credit;
  • Allowed workers without dependents to qualify for the credit at age 21 (rather than 25) in tax year 2018, a year sooner than under current law; and
  • Provided a larger credit for families with three or more children, similar to the federal EITC.

This proposal is similar to an expansion passed by the Legislature in 2016 but not enacted into law, and previous Working Family Credit expansion proposals from the governor.

The Working Family Credit remained part of the tax debate throughout the legislative session. However, the Legislature and the governor did not reach agreement on tax policy.

More Information

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

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