A fix to an error in last year’s tax bill that would leave Minnesotans paying higher income taxes is seeing early movement at the Legislature and could be among the first bills to make it to the governor’s desk this session.

The Minnesota House on Monday overwhelmingly approved a bill updating language in the 2023 tax code that inadvertently kept out-of-date standard deduction amounts for single and married filers.

The error won’t affect taxpayers until they file their 2024 taxes next year, but if it remains, around 2.3 million filers could end up owing $352 million more in taxes than lawmakers intended.

Standard deduction amounts in the tax bill last year were set at 2019 amounts, not the levels adjusted for inflation in 2023.

The 2019 standard deduction amounts were $24,400 for joint filers and $12,200 for singles. In 2023 it grew to $27,650 for joint filers and $13,825 for singles.

“This is a technical fix to ensure the standard deduction works as it should for the 90-plus percent of filers who use it,” said Rep. Aisha Gomez, a Minneapolis Democrat who chairs the House Committee on Taxes.

In a 128-2 vote, members of the House passed a bill to fix those standard deduction amounts.

Senate version

The fix is likely to be among the earliest bills lawmakers send to the desk of Gov. Tim Walz this session. A Senate version has already made it through the committee process and awaits a floor vote, though it wasn’t exactly clear Monday when the Senate might make its move.

In addition to the tax fix, the bill House members approved Monday also tweaks the legal definition of tribal nation to allow 11 federally recognized tribes in Minnesota to apply for statewide local housing aid. And it authorizes a local sales tax approved by Beltrami County voters last year. Republicans and Democratic-Farmer-Labor representatives came together in the House to pass the tax fix, though GOP representatives used Monday’s floor debate as an opportunity to criticize DFL tax policy and to push for an immediate fix to another error in last year’s tax bill.

In addition to the $352 million standard deduction error, last year’s tax bill also had an issue with a net operating loss deduction for businesses that could result in $15 million more tax liability for businesses statewide.

Gomez said DFLers plan to wait until next week’s fiscal outlook report before making any more decisions on taxes, though Republicans demanded a more immediate change.

GOP amendment

GOP representatives introduced an amendment to expand the scope of the bill to include the net operating loss fix, and after joining their DFL colleagues to approve the broader tax fix bill attempted to suspend rules to take up the business tax credit issue right away. None of their measures prevailed.

Many businesses have already started filing taxes, so if the change happens they’ll have to file amended returns. Republicans say that’s a burden, and that DFLers should join them to address the issue immediately.

Rep. Greg Davids, R-Preston, the top minority member on the House Tax Committee, said DFL tax chairs should back a change now since they said in a letter last summer they’d make the fix as soon as possible.

“Many businesses have not filed their taxes yet. If we take care of this they will not have to file amended returns which can be very, very expensive,” he said. “There is no reason that we should not be doing this now.”

Gomez said she still intends to advance a fix to the net operating loss deduction. Rep. Dave Lislegard, DFL-Aurora, is sponsoring that bill.

Minnesota Management and Budget is presenting its upcoming budget outlook on Feb. 28.

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