Tax break package for workers, businesses may add summer school funding, Minn. lawmakers say

Minnesota lawmakers say they're approaching a deal on nearly $500 million in tax breaks for struggling workers and businesses, adding that a final agreement will likely include funding for expanded summer school.

The Senate Taxes Committee unanimously approved a tax relief bill Tuesday morning, sending it to the Senate floor after adding a provision wiping away some of the tax burden on people who received pandemic unemployment benefits last year. 

"Kids, workers and businesses -- that’s what this bill can become," said state Sen. Ann Rest, DFL-New Hope. "What could be more bipartisan than that?"

Republicans who control the Senate plan to hold a vote within a week, but cautioned that the negotiations with the House are in their early stages. The House may have its own ideas on what should be included. Gov. Tim Walz has said he's open to a tax relief package.

The tax relief would help some businesses and workers that are getting surprise tax bills this spring. 

The majority of the bill would give a $440 million tax break to businesses that received Paycheck Protection Program loans from the federal CARES Act. The money is tax-free federally, but Minnesota is the last remaining state in the region to treat the forgivable loans as income.

More than 102,000 Minnesota businesses received $11.3 billion from the first round of the program.

Under the amendment added Tuesday, many of the 450,000 workers who got the federal unemployment boost of $600 a week last spring and summer through the CARES Act would also benefit.

The amendment allows workers to subtract a portion of those payments from their taxable income. Individuals could subtract $1,500 and married couples $3,000.

The cost is between $30 million and $50 million, Senate nonpartisan fiscal analysts estimate. The state Department of Revenue has not provided a formal analysis.

Workers who received the $600 boost for the full 17 weeks of eligibility ended up with $10,200 from the program. To get the money to laid-off workers quickly, Minnesota did not set up a taxing mechanism at the time. The federal boost came on top of regular state benefits, which were taxed.

The third element of a potential deal will expand summer school offerings for students, some of which have missed nearly a year of classroom time. Education funding is seen as key to winning support from Democrats who control the House.

Additional summer school funding is a priority for Walz, who included it in his budget proposal, and for House Speaker Melissa Hortman, who has raised the issue in negotiations over the tax relief package.

"As bad as the Senate might want to do this (tax relief), we cannot get it on the governor’s desk without the support of the state House," state Sen. Tom Bakk, I-Cook, said in the Taxes committee Tuesday.

Lawmakers got a gift last Friday from state budget officials in the form of a $1.6 billion projected surplus, which is driving the conversation around tax relief and increased education funding.

Senators said they want to get the tax breaks to Walz's desk by March 15 because of the approaching tax deadlines.