Minnesota Credit for Past Military Service

Section 290.0677, subdivision 1a gives a qualified individual a credit of $750 against the Minnesota income tax for past military service. The credit is reduced by ten percent of adjusted gross income in excess of $30,000, and cannot go below zero. Most descriptions of this credit, including the Department of Defense benefits library, give only the endpoint: adjusted gross income must be under $37,500. Both statements are true, because $750 less ten percent of $7,500 is zero. But a veteran with $34,000 of adjusted gross income has a credit of $350, not $750, and the phase-out begins at $30,000. That is the figure to plan around. A qualified individual must have separated from military service before the end of the taxable year and meet one of three tests: served at least 20 years in the military; has a service-connected disability rating of 100 percent for a total and permanent disability; or has been determined by the military to be eligible for compensation from a pension or other retirement pay from the federal government for service in the military, as computed under 10 U.S.C. sections 1401 to 1414, 1447 to 1455 or 12733. Note what the third test is and is not. It asks whether the person is eligible for military retired pay, not whether the person is drawing it. A reserve retiree with a 20-year letter who has not reached pay age is within the first test in any event. The credit is nonrefundable. Subdivision 3, which makes a credit refundable and appropriates money for it, is written to reach only the combat zone credit in subdivision 1. If the $750 exceeds the tax, the excess is lost. And the credit cannot be combined with the military pension subtraction. Section 290.0132, subdivision 21 says the subtraction is limited to individuals who do not claim the credit under section 290.0677. For a retiree with any real amount of retired pay in federal adjusted gross income, the subtraction is almost always the better of the two, and a retiree whose income is above $37,500 gets nothing from the credit at all. The veterans who actually benefit from this credit are the low-income ones, and for many of them the nonrefundability means the credit is worth less than its face. For a nonresident or a part-year resident the credit is allocated on the Minnesota income percentage computed under section 290.06, subdivision 2c, paragraph (e). The credit is claimed on Schedule M1C.