Minnesota Legislature Passes Federal Conformity Bill

Jul 1, 2021Business, Business Tax, Covid-19

MN PASSES TAX BILL

In their special session ending on June 30, 2021, the Minnesota legislature passed a federal tax conformity bill. Highlights of the bill are summarized below.

PPP CONFORMITY

The bill provides an exclusion from gross income for the federal Paycheck Protection Program (PPP) loans. The bill also allows businesses to deduct the expenses associated with the PPP meaning that the PPP funds received by businesses will not be subject to Minnesota tax. This provision applies to both first and second draw PPP funds.

OTHER SBA LOAN PAYMENTS

  • CARES Act Subsidy Payments: Businesses with SBA 7(a) loans who received payment subsidies or payment forgiveness, will not be subject to tax on the subsidies that were paid in 2020. Unlike federal law, this provision only applies to the 2020 tax year.
  • EIDL Loans: The EIDL (Economic Injury Disaster Loan) Advance payments that were received in tax year 2020 will not be subject to tax. This is generally the $10,000 payment that various businesses received. Unlike federal law, this applies only to the 2020 tax year.

PASSTHROUGH ENTITY TAX

The bill provides for Minnesota S Corporations and partnerships to elect to pay their state tax at the entity level rather than at the shareholder or partner level. The tax paid by the entity is fully deductible by the S Corp or Partnership and is not limited by the $10,000 cap on individual itemized deductions. This provision is in effect beginning in 2021 and as long as the federal SALT ($10,000) limitation is applicable.

EXCLUSION OF CERTAIN UNEMPLOYMENT INCOME

Minnesota will conform to the federal provision that excluded $10,200 of unemployment income for 2020 for taxpayers with under $150,000 in income.

SPECIAL USES OF RETIREMENT FUNDS

Minnesota conforms to the deferral of tax on the usage of up to $100,000 of COVID-related distributions from retirement accounts. Allowing the income to be included over the three following years.

NEXT STEPS

If you have not filed your tax return for 2020, the team at Smith Schafer will apply these changes to your return when it is completed.

We are awaiting guidance from the MN Department of Revenue (MNDOR) for taxpayers who have already filed their tax returns for 2020 and are impacted by these changes. It is anticipated that the MNDOR will make the changes and issue refunds related to these changes and that an amended return will not be required.

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