On Monday, Gov. Tim Walz and legislative leaders announced they had agreed on a state budget deal that will bring Minnesota’s taxes on unemployment payments and forgiven Paycheck Protection Program (PPP) loans in line with the federal government’s. Specifically, the state will exempt $1o,200 of unemployment benefits from state income taxes and will exempt all forgiven PPP loans.

The moves come after the pandemic saw record numbers of Minnesotans file for unemployment benefits. Since many were filing for the first time, they may not have been aware that those benefits are taxed just like other kinds of income. Making matters worse, while taxes were withheld from regular unemployment payments, in Minnesota taxes were not withheld from the extra $600 and $300 weekly unemployment payments authorized by the CARES Act and executive order of President Donald Trump, respectively. The state skipped the withholdings in order to get payments out as quickly as possible, but it means that some taxpayers who received the payments faced higher than expected tax bills.

The issue with PPP loans is similar: the loans were designed to help employers of all sizes keep workers on payrolls even as demand for services plummeted. As long as the loans were used for paying workers or other specific expenses related to keeping the business afloat, the federal government would forgive the full amount of the loan. But there’s the catch: once such a loan is forgiven by the government, the amount that was forgiven is considered income for the business and therefore subject to taxes.

The federal government adopted policies to address both of these issues. On unemployment, the feds simply exempted up to $10,200 in unemployment benefits from income taxes for households making less than $150,000 per year. And forgiven PPP loans were exempted from taxation entirely.

Many states have followed suit in exempting these types of income from taxes. Minnesota lawmakers debated plans for months but did not come to an agreement until Monday morning — coincidentally, the day taxes are due for individuals. The deal was only announced Monday morning but has yet to actually be incorporated into legislation, passed by both houses of the Legislature and signed by the governor. That means taxpayers still need to file their taxes as usual by the Monday deadline, according to Department of Revenue spokesperson Ryan Brown.

Last week, he said if changes were made, the department would review the law and determine whether adjustments can automatically be made on returns. If the state can’t make automatic adjustments, it will notify taxpayers and ask them to file an amended return.

“We will try to adjust as many of those returns as we can automatically,” said Revenue Commissioner Robert Doty in a tax bill conference committee Friday. “But there will be a significant number of those that we will not be able to adjust automatically and, quite frankly, that will depend on the complexity of the returns,” as well as the complexity of any tax bill passed.