House tax bill includes transformational changes to the Renters’ Credit

Joo Ning Lim
Apr 21, 2022

The Minnesota House has proposed revolutionary changes to simplify the Renters’ Credit and significantly expand the number of low- and moderate-income Minnesotans who receive it. The changes are part of the 2022 House omnibus tax bill (House File 3669), and would expand the Renters’ Credit by about $150 million a year.

Expanding the Renters’ Credit is an example of transformational change that puts everyday Minnesotans first and is an important step forward in ensuring that all Minnesotans have safe and affordable housing.

What is the Renters’ Credit and who receives it?

While all Minnesotans want safe and affordable homes for themselves and their families, some folks living on fixed or low incomes struggle to afford the cost of housing and other basic necessities. Property tax refunds for homeowners and renters are one way the state helps bring down the costs of housing and creates a more equitable tax system.

The Renters’ Credit is a property tax refund for low- and moderate-income renters whose property taxes are considered high for their income level. It refunds a portion of the property taxes that renters pay through their rents. The Renters’ Credit is targeted to those with lower incomes and prioritizes those whose property taxes make up a larger share of their budget.

For the 2018 tax year, over 314,000 Minnesota households received the Renters’ Credit, and the average amount of credit received was $691. Thirty percent of the households receiving the Renters’ Credit included senior citizens and/or people living with disabilities. The share of participating households that include seniors or people living with disabilities tends to be higher in Greater Minnesota. In fact, in 21 Greater Minnesota counties, at least half of the participating households included seniors and/or persons living with disabilities.

With many Minnesota households still struggling to afford rent and meet basic needs, a robust Renters’ Credit would provide them with a needed economic boost.

What this proposal does

This proposal would make two major changes to the Renters’ Credit.

First, it changes the Renters’ Credit into a refundable income tax credit. Currently, eligible renters apply for this credit through the Property Tax Refund application, due August 15. With this proposal, qualifying renters would apply for it as a tax credit on their state individual income tax return.

Second, the proposal simplifies the definition of income for qualifying for and calculating the Renters’ Credit. It would base the credit on Adjusted Gross Income (AGI), rather than the broader and more complicated “household income” that is currently used. 

This proposal has several meaningful outcomes. It would:

  • Reduce barriers so that more currently eligible renters receive the property tax refund they qualify for;
  • Simplify the process to apply for and calculate the credit;
  • Provide larger property tax refunds for many currently eligible renters and allow more renters to qualify;
  • Get refunds out to renters much earlier in the year.

Many Minnesota renters would benefit from this proposal. An estimated 120,000 renters who are currently eligible but don’t currently claim the credit are expected to begin claiming it under the new process, and receive an average Renters’ Credit of about $700. Another 36,000 renters would become newly eligible and receive an average refund around $400. For renters who currently claim the Renters’ Credit, the change in income definition would result in a $212 larger Renters’ Credit, on average. 

An expanded Renters' Credit could also advance racial equity. In Minnesota, people of color are more likely to be earning lower incomes and more likely to be renters. This reflects current barriers to economic success and wealth-building and a history of policies that excluded African Americans and other people of color from homeownership.

Fiscal impact

The net impact of these changes in the Renters’ Credit would be to expand it by about $150 million per year.

There is an additional one-time cost in FY 2023 because the proposal would shift when Renters’ Credits are paid from the fall to spring. That would result in two calendar years’ of Renters’ Credit falling in the same state fiscal year during the transition from the current system to the new one. 

Expanding the Renters' Credit addresses hardship and inequity

Expanding the Renters’ Credit can build economic security and a fairer tax system, moving us toward becoming a state where every Minnesotan can thrive. Policymakers have proposed a transformational change that prioritizes the lower-income and BIPOC Minnesotans who have struggled the most during the pandemic and in the unequal recovery that has followed.