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LBO: Marriage credit offsets marriage penalty for most filers but yields mixed over/underpayments
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Summary
The Legislative Budget Office told the Taxes Committee that the marriage credit matches the marriage penalty for about 59% of filers; the remainder receive either modest overpayments or underpayments. LBO offered two modification options and said the commission voted to recommend modifications to be detailed in the 2026 report.
The Legislative Budget Office presented its evaluation of Minnesota's marriage credit to the Taxes Committee, summarizing how the credit operates and how well it compensates joint filers for "marriage penalty" effects under the state's progressive income-tax structure.
"The objective of the marriage credit is to reduce marriage penalties resulting from Minnesota income tax rate brackets for qualified two-earner married couples who file a joint return," Alyssa Holterman Rosas, lead budget analyst at the LBO, told the committee. She described two calculation methods on Schedule M1MA: a statutory lookup table and a full calculation method; the lookup table uses range midpoints and can produce both underpayments and overpayments for individual filers.
The Department of Revenue's most recent estimates cited by the LBO showed 422,200 claims in tax year 2023 and a maximum credit of $1,801 in 2024. LBO summary statistics indicated the marriage credit matches the penalty for about 59% of filers; among the remainder, roughly 51.5% of those cases were net marriage bonuses (overpayments) and 48.5% net marriage penalties (underpayments). The LBO reported the cumulative statewide impact of these over- and underpayments as $139,720 in underpayments.
LBO staff tested multiple hypothetical scenarios and found the lookup-table method can produce differences versus the exact calculation, in some scenarios producing overpayments or underpayments on the order of up to about $105. The office also noted administrative burden for paper filers—roughly 6% of returns are filed on paper, and most of those were software-generated.
To address effectiveness concerns, LBO staff identified two potential alternatives: repeal the statutory requirement for the lookup table and require filers use the full calculation method, or modify the lookup table to use finer income ranges to reduce midpoint errors. LBO also cited a Department of Revenue estimate that offsetting the credit's cost through revenue-neutral tax-rate changes would reduce the state income-tax rate by about 0.045 percentage points, but noted rate changes would not necessarily eliminate joint-filing anomalies because of the graduated tax structure.
The commission has voted to recommend a modification; LBO said the full text and details of any commission recommendation will be included in the 2026 annual report.
