LBO finds marriage credit matches penalty for most filers but lookup table causes mismatches for many

Legislative Budget Office analysts told the Committee on Taxes that their evaluation of Minnesota’s marriage credit shows the credit matches the marriage penalty for 59% of filers, while the remainder experience mismatches that sometimes produce a marriage bonus and sometimes an underpayment.

Alyssa Holterman Rosas (LBO) said Department of Revenue data (tax-year 2023 claims estimate from the 2024 tax-expenditure budget) showed 422,200 claims in 2023. Using sample scenarios, LBO found that among filers for whom the M1MA lookup table applies, results can differ from the exact penalty calculation by a range that in the sample reached overpayments of about $105 and underpayments of about $104 in the illustrative cases. LBO reported an aggregate sample estimate of about $139,720 in cumulative underpayments in the 2021 sample.

LBO outlined two statutory options to reduce inefficiencies tied to the lookup table: repeal the statutory requirement that the commissioner produce a lookup table and require all filers to use the exact calculation method in part 2 of the M1MA; or retain the lookup table but refine it with finer income ranges to reduce midpoint variance. LBO staff also noted the credit is nonrefundable, so filers whose tax liability is reduced to zero may not realize the full value of the credit.

Committee members asked for more breakdowns; LBO cited an available sample and Department of Revenue tax-research analyses and offered to supply additional incidence detail. Members flagged that 94% of the credit’s dollars are realized by households in the top three income deciles, and that administrative burden (paper filing complexity) falls mostly on a small share of filers.

Next steps: the commission voted to recommend modification of the marriage credit; staff said the commission’s formal recommendation text will be included in the annual report and that LBO will provide requested follow-up data to the committee.