Getting your Trinity Audio player ready...

By Dana Ferguson

Gov. Tim Walz dialed the head of the federal tax system this week to make a last-ditch ask: Don’t tax Minnesota’s rebate checks as income.

Thursday’s one-on-one with IRS Commissioner Danny Werfel was the latest effort by Minnesota elected officials to convince federal tax leaders to reverse course; Republican U.S. Rep. Pete Stauber publicized his own call with Werfel recently raising the same points and also criticizing the way the rebate was enacted for causing a tax quandary in the first place.

The Minnesota pressure campaign comes ahead of the Jan. 29 opening date for taxpayers to file their 2023 taxes.

Last month, the agency announced that it would take a cut of the rebate funding that trickled out to taxpayers last fall. That means Minnesotans could have to hand over $26 to $286 depending how much they received from the initial payout.

At the time, Walz called the decision disappointing, along with a few coarser descriptors. While other states were able to bill similar programs and payments as pandemic-era disaster relief, federal officials said Minnesota’s checks came in after the federal COVID-19 pandemic emergency declaration closed out.

The bill’s passage through the Legislature came 10 days too late. The governor signed it into law 12 days after the declaration expired. The IRS determination marked a 180-degree turn from how it viewed similar rebates distributed by 21 states in 2022.

More recently, it has granted exemptions to other state programs that spilled into 2023.

In a letter to IRS officials earlier this month, Minnesota Tax Committee Chairs Aisha Gomez and Ann Rest urged Werfel to grant Minnesota’s rebate check program an exemption similar to one it authorized for a winter energy relief payment program in Maine.

“Since 2022, (the) Minnesota Legislature and Walz Administration have discussed relief payments to Minnesotans for the impact of inflation and lingering effects of the pandemic,” the pair of DFL lawmakers wrote. “We believe taxing these relief payments would put Minnesotans at an unfair disadvantage compared to similarly situated residents of other states covered by the guidance who are able to exclude ‘spillover’ state payments made in 2023.”

State revenue officials said they mimicked pandemic-relief programs in other states to attempt to fall within the criteria laid out by the IRS.

“We used the parameters and the facts that we kind of had before us to design this one-time rebate,” Revenue Commissioner Paul Marquart told MPR News last month. “And we thought we had matched up very well with those states that had been found not taxable. But ultimately, it’s the IRS who makes that determination.”

Members of Minnesota’s Republican congressional delegation have also pressed IRS leaders to re-evaluate the checks. Stauber met with the agency about how to reverse the taxing decision, and said in a news release this week that he remains “cautiously optimistic.”

A spokesperson for Democratic U.S. Sen. Tina Smith said staff in the office has also been briefed about the topic too by IRS officials and she is closely monitoring the situation.

After the IRS announced that it would count the checks as income, the state Department of Revenue began sending out 1099 tax forms that reflect the rebate amount for each recipient. They will have to claim that as income when filing federal returns for 2023.

The IRS previously ruled that Minnesota’s frontline worker awards approved in 2022 were taxable, too.