Scholarships, dependent flexible spending accounts, and health flexible spending accounts excluded from income definition used by the homestead credit refund program.

A bill for an act

relating to taxation; property tax refunds; excluding scholarships, dependent flexible

spending accounts, and health flexible spending accounts from the income definition

used by the homestead credit refund program; amending Minnesota Statutes 2025

Supplement, section 290A.03, subdivision 3.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2025 Supplement, section 290A.03, subdivision 3, is

amended to read:

Subd. 3.

Income.

(a) "Income" means the sum of the following:

(1) federal adjusted gross income as defined in the Internal Revenue Code; and

(2) the sum of the following amounts to the extent not included in clause (1):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section 469,

paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity loss

carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness of a

solvent individual excluded from gross income under section 108(g) of the Internal Revenue

Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments received

under the federal Social Security Act, Supplemental Security Income, and veterans benefits),

which was not exclusively funded by the claimant or spouse, or which was funded exclusively

by the claimant or spouse and which funding payments were excluded from federal adjusted

gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality or

political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or sick

pay as a result of accident, sickness, or other disability, whether funded through insurance

or otherwise;

(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of

1986, as amended through December 31, 1995;

(xi) contributions made by the claimant to an individual retirement account, including

a qualified voluntary employee contribution; simplified employee pension plan;

self-employed retirement plan; cash or deferred arrangement plan under section 401(k) of

the Internal Revenue Code; or deferred compensation plan under section 457 of the Internal

Revenue Code, to the extent the sum of amounts exceeds the retirement base amount for

the claimant and spouse;

(xii) to the extent not included in federal adjusted gross income, distributions received

by the claimant or spouse from a traditional or Roth style retirement account or plan;

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(xiii) nontaxable scholarship or fellowship grants;

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(xiv)
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(xiii)
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alimony received to the extent not included in the recipient's income;

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(xv)
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(xiv)
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the amount of deduction allowed under section 220 or 223 of the Internal

Revenue Code;

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(xvi)
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(xv)
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the amount deducted for tuition expenses under section 222 of the Internal

Revenue Code; and

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(xvii)
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(xvi)
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the amount deducted for certain expenses of elementary and secondary school

teachers under section 62(a)(2)(D) of the Internal Revenue Code.

In the case of an individual who files an income tax return on a fiscal year basis, the

term "federal adjusted gross income" shall mean federal adjusted gross income reflected in

the fiscal year ending in the calendar year. Federal adjusted gross income shall not be reduced

by the amount of a net operating loss carryback or carryforward or a capital loss carryback

or carryforward allowed for the year.

(b) "Income" does not include:

(1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and 102;

(2) amounts of any pension or annuity which was exclusively funded by the claimant

or spouse and which funding payments were not excluded from federal adjusted gross

income in the years when the payments were made;

(3) to the extent included in federal adjusted gross income, amounts contributed by the

claimant or spouse to a traditional or Roth style retirement account or plan, but not to exceed

the retirement base amount reduced by the amount of contributions excluded from federal

adjusted gross income, but not less than zero;

(4) surplus food or other relief in kind supplied by a governmental agency;

(5) relief granted under this chapter;

(6) child support payments received under a temporary or final decree of dissolution or

legal separation;

(7) restitution payments received by eligible individuals and excludable interest as

defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of 2001,

Public Law 107-16;

(8) alimony paid;

(9) veterans disability compensation paid under title 38 of the United States Code;

(10) to the extent included in federal adjusted gross income, the amount of discharge of

indebtedness awarded to the claimant under section
332.74, subdivision 3
;
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or
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(11) to the extent included in federal adjusted gross income, the amount of consumer

enforcement public compensation received as a distribution to an eligible consumer under

section
8.37, subdivision 5
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;
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(12) the amount of dependent care assistance excluded from gross income under section

129 of the Internal Revenue Code;

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(13) the amount the taxpayer contributed to a health flexible spending arrangement that

is excluded from gross income as a cafeteria plan under section 125 of the Internal Revenue

Code and is subject to the limitation under section 125(i) of the Internal Revenue Code; or

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(14) nontaxable scholarship or fellowship grants
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.

(c) The sum of the following amounts may be subtracted from income:

(1) for the claimant's first dependent, the exemption amount multiplied by 1.4;

(2) for the claimant's second dependent, the exemption amount multiplied by 1.3;

(3) for the claimant's third dependent, the exemption amount multiplied by 1.2;

(4) for the claimant's fourth dependent, the exemption amount multiplied by 1.1;

(5) for the claimant's fifth dependent, the exemption amount; and

(6) if the claimant or claimant's spouse had a disability or attained the age of 65 on or

before December 31 of the year for which the taxes were levied, the exemption amount.

(d) For purposes of this subdivision, the following terms have the meanings given:

(1) "exemption amount" means the exemption amount under section
290.0121,

subdivision 1
, paragraph (b), for the taxable year for which the income is reported;

(2) "retirement base amount" means the deductible amount for the taxable year for the

claimant and spouse under section 219(b)(5)(A) of the Internal Revenue Code, adjusted for

inflation as provided in section 219(b)(5)(C) of the Internal Revenue Code, without regard

to whether the claimant or spouse claimed a deduction; and

(3) "traditional or Roth style retirement account or plan" means retirement plans under

sections 401, 403, 408, 408A, and 457 of the Internal Revenue Code.

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EFFECTIVE DATE.

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This section is effective beginning with refunds based on property

taxes payable in 2027.

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