One of the highlights of last year’s tax discussion is moving forward again this session: a game-changing proposal to simplify the Renters’ Credit and significantly expand the number of low- and moderate-income Minnesotans who receive it. When Chair Dave Lislegard wrapped up the work of the House Property Tax Division, he included this exciting proposal in their division report.
This Renters’ Credit expansion proposal was part of last year’s House omnibus tax bill, as well as the 2022 tax conference committee agreement that was not enacted into law. It moved through the process this year as House File 1653 (lead author Representative Nathan Coulter) and Senate File 45 (lead author Senator Matt Klein).
Expanding the Renters’ Credit is an example of bold action to respond to the challenges that everyday Minnesotans are facing, and would be an important step forward in ensuring that all Minnesotans have safe and affordable housing.
What is the Renters’ Credit and who receives it?
While all Minnesotans want safe and affordable homes for themselves and their families, some folks living on fixed or low incomes struggle to afford the cost of housing and other basic necessities. Income-targeted property tax refunds for homeowners and renters are one way the state brings down the costs of housing and creates a more equitable tax system.
The Renters’ Credit is a property tax refund for low- and moderate-income renters whose property taxes are considered high for their income level. It refunds a portion of the property taxes that renters pay through their rents. The Renters’ Credit is targeted to those with lower incomes and prioritizes those whose property taxes make up a larger share of their budget.
For the 2019 tax year, over 305,000 Minnesota households received the Renters’ Credit and the average amount of credit received was $704. Thirty percent of the households receiving the Renters’ Credit included senior citizens and/or people living with disabilities. The share of participating households that include seniors or people living with disabilities tends to be higher in Greater Minnesota. In fact, in 18 Greater Minnesota counties, at least half of the participating households included seniors and/or persons living with disabilities.
With many Minnesota households still struggling to afford rent and meet basic needs, a robust Renters’ Credit would provide them with a needed economic boost.
What this proposal does
This proposal would make two major changes to the Renters’ Credit.
First, it changes the Renters’ Credit into a refundable income tax credit. Currently, eligible renters apply for the Renters’ Credit through the Property Tax Refund application, due August 15. With this proposal, qualifying renters would apply for the Renters’ Credit as part of the income tax filing process, starting with taxes filed in 2025.
Second, the proposal simplifies the definition of income for qualifying for and calculating the Renters’ Credit. It would base the credit on Adjusted Gross Income (AGI), like many other tax credits and provisions of our tax law, rather than the broader and more complicated “household income” that is currently used.
This proposal has several meaningful outcomes. It would:
- Reduce barriers so that more currently eligible renters receive the property tax refund they qualify for;
- Simplify the process to apply for and calculate the credit;
- Provide larger property tax refunds for many currently eligible renters and allow more renters to qualify; and
- Get refunds out to renters much earlier in the year.
Many Minnesota renters would benefit from this proposal. An estimated 119,000 renting households who are currently eligible – but don’t currently claim the credit – are expected to begin claiming it under the new process. Another 33,000 renters would become eligible. For about half of renters who currently claim the Renters’ Credit, the change in income definition would result in a $204 larger Renters’ Credit on average.
An expanded Renters’ Credit could also advance racial equity. In Minnesota, people of color are more likely to be earning lower incomes and more likely to be renters. This reflects current barriers to economic success and wealth-building and a history of policies that excluded African Americans and other people of color from homeownership.
Fiscal impact
The net impact of these changes in the Renters’ Credit would be to expand it by more than $135 million per year.
There is an additional one-time cost of $379 million in FY 2025 because the proposal would shift when Renters’ Credits are paid from the fall to spring. That would result in two calendar years of Renters’ Credit being paid out in the same state fiscal year during the transition from the current system to the new one.
Expanding the Renters’ Credit addresses hardship and inequity
Expanding the Renters’ Credit would provide a needed economic boost for Minnesotans struggling to make ends meet, whether they be workers, families, seniors, or people with disabilities, and moving us toward becoming a state where every Minnesotan can thrive.
Joo Ning Lim contributed to an earlier version of this blog.