State & Local Tax Impacts of COVID-19 for Minnesota – 2021

Information current as of September 30, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor^™ or visit our COVID-19 Resource Center for current information as needed.

Information Specific to Minnesota

• Minnesota sent COVID-19 Business Relief Payments to restaurants, bars, gyms, and bowling centers affected by the COVID-19 pandemic on January 13, 2020. This program is part of a state economic relief measure signed into law in December. If a business isn’t eligible for a COVID-19 Business Relief Payment, the business may qualify for a state or county grant under this law. The state has issued a release detailing what businesses are eligible for the program, program requirements, relief payment amounts, and the payment process. The release specifies the payments are considered taxable income. The release also notes that if the DOR is collecting a tax or other debt from a business, the DOR won’t take (offset) these payments to apply to the debt. 
  • Minnesota DOR, COVID-19 Business Relief Payments; January 19, 2021.
• Minnesota updated its frequently asked questions (FAQ) guidance on the tax treatment of various COVID-19 relief programs and other issues relating to the COVID-19 pandemic. Taxpayers must make an adjustment on the appropriate Minnesota nonconformity schedule for the federally excluded Paycheck Protection Program (PPP) loan forgiveness amount and the related federally disallowed business expenses. Repaid PPP loan amounts will be treated the same way as they are on the federal return. The $600-a-week Federal Pandemic Unemployment Compensation payments are included in Minnesota adjusted gross income (AGI). The IRS economic impact payments aren’t included in household income for the Minnesota property tax refund. These payments are considered a federal tax credit.
  • Minnesota DOR, COVID-19 FAQs; February 5, 2021.
• Minnesota has extended the due date to file and pay individual income taxes for tax year 2020 until May 17, 2021. This grace period doesn’t apply to individual estimated tax payments.
  • Minnesota DOR, News Release; March 19, 2021.
• Minnesota issued COVID-19 guidance on the PPP for individual income tax purposes. Minnesota law generally conforms to the Internal Revenue Code (IRC), as amended through December 31, 2018. The FAQ guidance is updated to explain that 1) PPP loan forgiveness is taxable by the state in the year of forgiveness; 2) there’s no adjustment on the Minnesota income tax returns for expenses paid with a PPP loan; and 3) taxpayers may receive a federal Form 1099-C reporting debt forgiveness for the PPP loans.
  • Minnesota DOR, COVID-19 FAQs for Individuals; March 22, 2021.
• Minnesota issued guidance on how individual income taxpayers must treat and report 2020 unemployment compensation. The American Rescue Plan Act of 2021 (ARPA) excludes up to $10,200 of 2020 unemployment benefits from federal individual income tax if the taxpayer’s AGI for the tax year is less than $150,000. Married taxpayers filing jointly can exclude $10,200 for each spouse. The Minnesota IRC conformity date for computing personal income tax liability doesn’t adopt the ARPA exclusion, so taxpayers must include any related federally excluded unemployment compensation in Minnesota AGI. The guidance provides specific instructions on where taxpayers must report the addback on their return.
  • Minnesota DOR, Tax Notice; March 25, 2021.
• Minnesota’s budget legislation includes tax relief for businesses and unemployed workers affected by the pandemic, adopting the following federal provisions: 1) exclusion from gross income for PPP loan forgiveness and deduction of associated expenses; 2) exclusion from gross income of up to $10,200 of unemployment compensation received for tax year 2020; 3) exclusion from gross income for discharge of qualified principal residence indebtedness; 4) exclusion from gross income for emergency financial aid grants provided under the CARES Act; 5) accelerated depreciation for business property on Indian reservations; 6) expensing of up to $15 million of qualified film, television, and live theater production costs in the year incurred; 7) extension of the additional deduction for certain biofuel plant property; 8) extension of the energy-efficient commercial buildings deduction; 9) exception from the capitalization rules for interest paid during the aging period for beer, wine, and spirits, allowing a deduction in the year the costs are incurred; 10) special disaster rules for use of retirement funds, charitable contributions, and casualty loss deductions; 11) exclusion from gross income for benefits provided to volunteer firefighters and emergency medical responders; 12) special rules for coronavirus-related distributions from retirement accounts; 13) requiring the Secretary of the Treasury to issue guidance clarifying the eligibility of personal protective equipment and other supplies to control COVID-19 for the federal educator expense deduction; 14) exclusion from gross income for advances through the COVID-19 Economic Injury Disaster Loan (EIDL) and Targeted EIDL Advance programs, and deduction for associated expenses, adopted for Minnesota purposes for payments in tax year 2020 only; and 15) exclusion from gross income for small business loan subsidy payments under the CARES Act, and deduction for associated expenses, adopted for Minnesota purposes for payments in tax year 2020 only.
  • Minnesota H.F. 9 (Special Session), effective July 2, 2021.
  • Minnesota DOR Release, August 13, 2021.
• Minnesota will begin processing state tax returns affected by unemployment insurance and PPP law changes, so taxpayers do not need to take the time and resources to file amended returns.  The DOR will initially process about 1,000 individual income tax returns per week, beginning in the week of September 13, and hopes to increase that to 50,000 returns per week by late October.  The DOR sent letters in mid-August to the affected individuals who will need to file amended returns to get the tax benefits.  The DOR has already started issuing refunds to corporate entity-level taxpayers with returns affected by the PPP changes.
  • Minnesota DOR, News Release; September 9, 2021.
     

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