A plan to phase out the Minnesota income tax on Social Security benefits is under consideration at the Legislature.
Minnesota is one of a few states to tax the benefits, although it doesn’t affect many low-income seniors.
The plan, pushed by state Sen. Dave Senjem, a Republican from Rochester, would be phased in over 10 years, if passed, the Rochester Post Bulletin said.
“We’re taxing a benefit here. I think that’s, generally speaking, unconscionable. We shouldn’t have ever done it in the first place,” Senjem said.
The cost to the state over the next two-year budget, he said: about $127 million.
Supporters say in the long run, the phase-out could prevent retired Minnesotans from moving to a state that doesn’t tax their SS benefits.
The state revenue department explains how the state tax affects Social Security income:
Under current law, up to 85 percent of Social Security benefits are subject to federal and state income tax, depending on the taxpayer’s income. Benefits subject to federal and state tax include retirement, survivor, and disability benefits, but not supplemental security income (SSI) payments, which are not taxed. For taxpayers with provisional incomes less than $25,000 ($32,000 for married joint taxpayers), all Social Security benefits are excluded from taxable income. For provisional incomes between $25,000 and $34,000 ($32,000 and $44,000 for married joint taxpayers), up to 50 percent of Social Security benefits may be subject to tax. For those with provisional incomes over $34,000 ($44,000 for married joint taxpayers), up to 85 percent of Social Security benefits may be included in taxable income.
AARP supports the phase-out plan.
But the paper quotes state Rep. Paul Marquardt, a DFLer from Dilworth, who worries about the cost, and says that about 150,000 Minnesotans have income low enough that they already don’t pay state tax on their Social Security income.
“We have to absolutely make sure that we’re responsible and we’re not leaving a huge hole in the budget for 10 years or even five years,” Marquardt said. “We just can’t leave a huge bill for the next generation down the road.”