Property tax refunds could grow under proposed changes

When someone mentions “Tax Day,” they generally mean April 15, the day federal and state income tax forms are due to the government.

But Aug. 15 is a tax day, too. That’s when applications are due for a state property tax refund. Available to both homeowners and renters, it uses a formula based on your income and property taxes that could net you a check.

And it could be even bigger.

Sponsored by Rep. Julie Sandstede (DFL-Hibbing), HF3472 would change the formula used for the state’s property tax refund programs, the Homestead Credit Refund and the Renter’s Credit. While those programs use household income as their basis, the bill would change the calculation to use federal adjusted gross income instead, thus resulting in larger refunds for most filers.

The bill was laid over Wednesday by the House Property Tax Division for possible inclusion in the division report to the House Taxes Committee. Its companion, SF3182, sponsored by Sen. Matt Klein (DFL-Mendota Heights), awaits action by the Senate Taxes Committee.

“This is called my ‘Dream Big and Simplify’ bill,” Sandstede said. “Instead of using a unique, confusing formula, we would streamline how we determine property tax refund amounts. It would save people, especially our seniors, a lot of money. Over 70% of homeowners and renters currently receiving a property tax refund would see an increase in their refund.

“This bill is just one step that we could take to help our seniors stay in their homes, and better afford the rising costs that they’re struggling with every day.”

The current formula uses household income, which takes federal adjusted gross income as its starting point, but adds many kinds of income that are nontaxable federally. All those would be removed from the calculation, save for those exemptions you receive if you have dependents, are 65 or older, or have a disability. In tax year 2022, those are equal to $4,450 each.

The Revenue Department estimates that, under the proposed changes, 777,000 Minnesota filers would have their refunds altered, 627,000 seeing an increase. Most of those seeing larger refunds would be under the Homestead Credit State Refund program, at an average increase of $292. The department also estimates that there would be 92,000 newly eligible filers.

It’s projected that the change would lower the General Fund $208 million in fiscal year 2024.

A second Sandstede bill was also laid over by the division: HF3509 deals with the same property tax refund programs, but wouldn’t make the wholesale change to federal adjusted gross income. Instead, it would stay with the current formula based on household income, but exclude any Social Security income that is nontaxable federally.

The Revenue Department estimates the changes would increase property tax refunds for 368,000 filers. That would include 248,000 recipients of the Homestead Credit State Refund seeing an average increase of $350, and 93,000 of those receiving the Renter’s Credit getting an average increase of $290. About 27,000 filers would become newly eligible.

The change would reduce the General Fund $122.8 million in fiscal year 2024.

That bill’s Senate companion is SF3571, sponsored by Sen. Ann Rest (DFL-New Hope), which also awaits action in the Senate Taxes Committee.

“It’s one of those win-win-win-win type of bills,” said Rep. Paul Marquart (DFL-Dilworth). “First of all, it’s helping senior citizens, but, as far as tax policy, it’s increasing transparency, it’s making the system simpler, it has more consistency, and it seems a lot more fair.”