1.1                          A bill for an act 
  1.2             relating to taxation; income tax; providing a 
  1.3             dependent exemption and increasing the working family 
  1.4             credit; amending Minnesota Statutes 1999 Supplement, 
  1.5             sections 290.01, subdivision 19b; and 290.0671, 
  1.6             subdivision 1. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 1999 Supplement, section 
  1.9   290.01, subdivision 19b, is amended to read: 
  1.10     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  1.11  individuals, estates, and trusts, there shall be subtracted from 
  1.12  federal taxable income: 
  1.13     (1) interest income on obligations of any authority, 
  1.14  commission, or instrumentality of the United States to the 
  1.15  extent includable in taxable income for federal income tax 
  1.16  purposes but exempt from state income tax under the laws of the 
  1.17  United States; 
  1.18     (2) if included in federal taxable income, the amount of 
  1.19  any overpayment of income tax to Minnesota or to any other 
  1.20  state, for any previous taxable year, whether the amount is 
  1.21  received as a refund or as a credit to another taxable year's 
  1.22  income tax liability; 
  1.23     (3) the amount paid to others, less the credit allowed 
  1.24  under section 290.0674, not to exceed $1,625 for each qualifying 
  1.25  child in grades kindergarten to 6 and $2,500 for each qualifying 
  1.26  child in grades 7 to 12, for tuition, textbooks, and 
  2.1   transportation of each qualifying child in attending an 
  2.2   elementary or secondary school situated in Minnesota, North 
  2.3   Dakota, South Dakota, Iowa, or Wisconsin, wherein a resident of 
  2.4   this state may legally fulfill the state's compulsory attendance 
  2.5   laws, which is not operated for profit, and which adheres to the 
  2.6   provisions of the Civil Rights Act of 1964 and chapter 363.  For 
  2.7   the purposes of this clause, "tuition" includes fees or tuition 
  2.8   as defined in section 290.0674, subdivision 1, clause (1).  As 
  2.9   used in this clause, "textbooks" includes books and other 
  2.10  instructional materials and equipment used in elementary and 
  2.11  secondary schools in teaching only those subjects legally and 
  2.12  commonly taught in public elementary and secondary schools in 
  2.13  this state.  Equipment expenses qualifying for deduction 
  2.14  includes expenses as defined and limited in section 290.0674, 
  2.15  subdivision 1, clause (3).  "Textbooks" does not include 
  2.16  instructional books and materials used in the teaching of 
  2.17  religious tenets, doctrines, or worship, the purpose of which is 
  2.18  to instill such tenets, doctrines, or worship, nor does it 
  2.19  include books or materials for, or transportation to, 
  2.20  extracurricular activities including sporting events, musical or 
  2.21  dramatic events, speech activities, driver's education, or 
  2.22  similar programs.  For purposes of the subtraction provided by 
  2.23  this clause, "qualifying child" has the meaning given in section 
  2.24  32(c)(3) of the Internal Revenue Code; 
  2.25     (4) contributions made in taxable years beginning after 
  2.26  December 31, 1981, and before January 1, 1985, to a qualified 
  2.27  governmental pension plan, an individual retirement account, 
  2.28  simplified employee pension, or qualified plan covering a 
  2.29  self-employed person that were included in Minnesota gross 
  2.30  income in the taxable year for which the contributions were made 
  2.31  but were deducted or were not included in the computation of 
  2.32  federal adjusted gross income, less any amount allowed to be 
  2.33  subtracted as a distribution under this subdivision or a 
  2.34  predecessor provision in taxable years that began before January 
  2.35  1, 2000.  This subtraction applies only for taxable years 
  2.36  beginning after December 31, 1999, and before January 1, 2001; 
  3.1      (5) income as provided under section 290.0802; 
  3.2      (6) the amount of unrecovered accelerated cost recovery 
  3.3   system deductions allowed under subdivision 19g; 
  3.4      (7) to the extent included in federal adjusted gross 
  3.5   income, income realized on disposition of property exempt from 
  3.6   tax under section 290.491; 
  3.7      (8) to the extent not deducted in determining federal 
  3.8   taxable income, the amount paid for health insurance of 
  3.9   self-employed individuals as determined under section 162(l) of 
  3.10  the Internal Revenue Code, except that the percent limit does 
  3.11  not apply.  If the taxpayer deducted insurance payments under 
  3.12  section 213 of the Internal Revenue Code of 1986, the 
  3.13  subtraction under this clause must be reduced by the lesser of: 
  3.14     (i) the total itemized deductions allowed under section 
  3.15  63(d) of the Internal Revenue Code, less state, local, and 
  3.16  foreign income taxes deductible under section 164 of the 
  3.17  Internal Revenue Code and the standard deduction under section 
  3.18  63(c) of the Internal Revenue Code; or 
  3.19     (ii) the lesser of (A) the amount of insurance qualifying 
  3.20  as "medical care" under section 213(d) of the Internal Revenue 
  3.21  Code to the extent not deducted under section 162(1) of the 
  3.22  Internal Revenue Code or excluded from income or (B) the total 
  3.23  amount deductible for medical care under section 213(a); 
  3.24     (9) the exemption amount allowed under Laws 1995, chapter 
  3.25  255, article 3, section 2, subdivision 3; 
  3.26     (10) to the extent included in federal taxable income, 
  3.27  postservice benefits for youth community service under section 
  3.28  124D.42 for volunteer service under United States Code, title 
  3.29  42, section 5011(d), as amended; 
  3.30     (11) to the extent not deducted in determining federal 
  3.31  taxable income by an individual who does not itemize deductions 
  3.32  for federal income tax purposes for the taxable year, an amount 
  3.33  equal to 50 percent of the excess of charitable contributions 
  3.34  allowable as a deduction for the taxable year under section 
  3.35  170(a) of the Internal Revenue Code over $500; and 
  3.36     (12) to the extent included in federal taxable income, 
  4.1   holocaust victims' settlement payments for any injury incurred 
  4.2   as a result of the holocaust, if received by an individual who 
  4.3   was persecuted for racial or religious reasons by Nazi Germany 
  4.4   or any other Axis regime or an heir of such a person; and 
  4.5      (13) an amount equal to $1,200 for each of the taxpayer's 
  4.6   dependent exemptions, as defined in section 152 of the Internal 
  4.7   Revenue Code, and allowed on the taxpayer's federal tax return 
  4.8   for the tax year.  The subtraction under this clause is reduced 
  4.9   by two percent for each $2,500 of income over a threshold.  The 
  4.10  threshold is $193,400 for married couples filing joint returns, 
  4.11  $96,700 for married separate filers, $128,950 for single filers, 
  4.12  and $161,150 for head of household filers.  For taxable years 
  4.13  beginning after December 31, 2000, the commissioner shall adjust 
  4.14  the subtraction amount and phase out thresholds by the 
  4.15  percentage determined under section 290.06, subdivision 2d, for 
  4.16  the taxable year. 
  4.17     Sec. 2.  Minnesota Statutes 1999 Supplement, section 
  4.18  290.0671, subdivision 1, is amended to read: 
  4.19     Subdivision 1.  [CREDIT ALLOWED.] (a) An individual is 
  4.20  allowed a credit against the tax imposed by this chapter equal 
  4.21  to a percentage of earned income.  To receive a credit, a 
  4.22  taxpayer must be eligible for a credit under section 32 of the 
  4.23  Internal Revenue Code.  
  4.24     (b) For individuals with no qualifying children, the credit 
  4.25  equals 1.1475 1.1913 percent of the first $4,460 of earned 
  4.26  income.  The credit is reduced by 1.1475 1.1913 percent of 
  4.27  earned income or modified adjusted gross income, whichever is 
  4.28  greater, in excess of $5,570, but in no case is the credit less 
  4.29  than zero. 
  4.30     (c) For individuals with one qualifying child, the credit 
  4.31  equals 7.45 8.5 percent of the first $6,680 of earned income and 
  4.32  8.5 percent of earned income over $11,650 but less than $12,990. 
  4.33  The credit is reduced by 5.13 5.73 percent of earned income or 
  4.34  modified adjusted gross income, whichever is greater, in excess 
  4.35  of $14,560, but in no case is the credit less than zero. 
  4.36     (d) For individuals with two or more qualifying children, 
  5.1   the credit equals 8.8 ten percent of the first $9,390 of earned 
  5.2   income and 20 percent of earned income over $14,350 but less 
  5.3   than $16,230.  The credit is reduced by 9.38 10.3 percent of 
  5.4   earned income or modified adjusted gross income, whichever is 
  5.5   greater, in excess of $17,280, but in no case is the credit less 
  5.6   than zero. 
  5.7      (e) For a nonresident or part-year resident, the credit 
  5.8   must be allocated based on the percentage calculated under 
  5.9   section 290.06, subdivision 2c, paragraph (e). 
  5.10     (f) For a person who was a resident for the entire tax year 
  5.11  and has earned income not subject to tax under this chapter, the 
  5.12  credit must be allocated based on the ratio of federal adjusted 
  5.13  gross income reduced by the earned income not subject to tax 
  5.14  under this chapter over federal adjusted gross income. 
  5.15     (g) The commissioner shall construct tables showing the 
  5.16  amount of the credit at various income levels and make them 
  5.17  available to taxpayers.  The tables shall follow the schedule 
  5.18  contained in this subdivision, except that the commissioner may 
  5.19  graduate the transition between income brackets. 
  5.20     (h) An individual who qualifies for a credit under 
  5.21  paragraph (b) or (c) is allowed an additional credit of $100 for 
  5.22  each qualifying child claimed. 
  5.23     Sec. 3.  [EFFECTIVE DATE.] 
  5.24     Sections 1 and 2 are effective for taxable years beginning 
  5.25  after December 31, 1999.