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LBO: Marriage-credit lookup table leaves some couples under- or overcompensated; staff to seek filing-data follow-up
Summary
The Legislative Budget Office told the Tax Expenditure Review Commission its evaluation found the statutory marriage-credit lookup table produces both underpayments and overpayments relative to taxpayers' actual marriage penalties; LBO proposed either removing the lookup table (relying on software) or refining its ranges and will follow up with revenue data about paper versus electronic filers.
The Legislative Budget Office presented an evaluation of Minnesota’s marriage credit, telling the Tax Expenditure Review Commission the credit was enacted in 1999 to reduce marriage penalties caused by the state’s progressive tax brackets. Alyssa Holterman Roses of the Legislative Budget Office said the evaluation relied on Department of Revenue data for tax year 2021 and on the M1MA form used to claim the credit.
The LBO’s analysis showed the statutory lookup table that many filers must use (part one of schedule M1MA) can differ materially from the exact calculation in part two of the form. “Using the lookup table results in both underpayments and overpayments” compared with the full calculation, said Alyssa Holterman Roses. The office illustrated multiple examples in which the lookup-table result was smaller than the exact penalty, and at least one where it generated a larger credit (a “marriage bonus”).
Why it matters: the lookup table was created in statute to simplify calculation for paper filers, the LBO said, but with the vast majority of returns now prepared electronically the simplification may no longer be necessary. The LBO reported that in a 2021 sample about 41% of claimants experienced a difference between the lookup-table credit and the exact calculation; cumulative sample-level dollar discrepancies netted roughly $140,000 (over- and under-payments offsetting each other). The LBO also noted the non-refundability of the credit means some taxpayers who owe no tax get no benefit.
During questioning, commissioners pressed the LBO for a clearer count of how many returns are prepared electronically versus on paper and for a breakdown of overpayments versus underpayments. Commissioner Markwart and Representative Robbins emphasized the policy tradeoff: removing the lookup table would likely mean software performs the calculation for most filers, but a small share of paper filers would face a more burdensome, multi-step calculation unless a simpler worksheet is provided.
What the LBO recommended to the commission: the office presented two narrow options for statute change — repeal the statutory lookup table and require the part-two calculation for all filers (relying on electronic filing/software), or retain the lookup table but refine its income bins to reduce the variance from the midpoint. LBO staff agreed to follow up with the Department of Revenue to obtain clearer counts of electronic versus paper preparation and to report exact amounts and percentages for overpayments and underpayments in the 2021 sample.
Next steps: Commission members directed staff to draft the proposed evaluation template and to request the follow-up data from the Department of Revenue. No formal policy action was taken at the meeting; members indicated they expect the aggregated member-evaluation process and any statutory recommendation to be discussed at a future meeting.
