Expanded Credits, Federal Conformity, and PTE Key to MN Tax Bill
Minnesota Governor Tim Walz has outlined a series of tax policy proposals as lawmakers begin assembling the 2026 state tax bill. Presented by Revenue Commissioner Paul Marquart, the plan is designed to support a balanced budget, with projected surpluses of $3.7 billion for the current biennium (2026-2027) and $1.8 billion for 2028–2029. The proposal also includes conformity with recent federal tax law changes, which would have mixed revenue effects—reducing revenue in some areas, such as expanded business deductions, while increasing it in others through limits on charitable deductions and enhancements to certain employer-provided credits.
A key component of the proposal is a significant expansion of the state’s child and dependent care credit. Families with children under age five could receive up to $3,000 for one child or $6,000 for two or more, while families with older children would also see increased benefits. The expansion is expected to more than double the number of eligible families. Additional measures include a slight reduction in the state sales tax rate, offset by an expansion of the tax base to include professional services such as legal, accounting, and financial services, as well as new taxes on social media companies’ collection of consumer data.
The proposal also includes several targeted changes, such as extending the pass-through entity tax, expanding incentives for sustainable aviation fuel, and introducing new excise taxes on firearms and ammunition. Lawmakers raised questions about implementation details, particularly regarding valuation of consumer data and administration of federal conformity provisions. Legislative leaders indicated that further negotiations are expected as the tax bill continues to take shape in the coming weeks. We will continue to monitor and keep you informed on any new updates with the 2026 MN state tax bill.
IRS Offers New Extension Option for ERC Claim Disallowances
The IRS has announced a streamlined option for certain taxpayers to extend the deadline for resolving disallowed Employee Retention Credit (ERC) claims. Eligible taxpayers—those awaiting IRS review of their response to a disallowance notice (Letter 105-C or 106-C) and with six months or less remaining in the standard two-year deadline—may request additional time by filing Form 907. This extension allows both the IRS and the IRS Independent Office of Appeals more time to evaluate the claim administratively, while preserving the taxpayer’s ability to file a refund lawsuit if needed.
Under current rules, taxpayers generally have two years from the date of a disallowance notice to resolve their claim or initiate litigation, and filing an appeal does not pause this deadline. This has created challenges, particularly as the IRS works through a significant backlog of ERC claims. In some cases, taxpayers risk losing both refund eligibility and judicial review rights if the IRS review is not completed before the deadline expires. The new extension process is intended to address this issue and reduce the need for protective lawsuits filed solely to preserve legal rights.
The ERC program, originally enacted in 2020 to support businesses during the COVID-19 pandemic, has been subject to increased scrutiny due to a high volume of claims and concerns about improper filings. The IRS has implemented several measures to manage this, including processing pauses and compliance reviews. The new Form 907 procedure is expected to provide relief to affected taxpayers while helping the IRS manage ongoing reviews more efficiently. To request more time, eligible taxpayers can submit Form 907, Agreement to Extend to Time to Bring Suit, via the IRS Document Upload Tool available at https://bit.ly/4cWnWyW
House Approves Multiple Tax Administration Bills
The U.S. House of Representatives has advanced a package of bipartisan tax-related bills aimed at improving IRS operations and expanding targeted taxpayer relief. Key administrative measures include the Taxpayer Experience Improvement Act, which would enhance IRS online account functionality and introduce tools such as a phone wait-time dashboard, and the BARCODE Efficiency Act, which seeks to modernize paper return processing through scannable codes and optical character recognition technology. Another proposal would strengthen taxpayer privacy by requiring clearer notification when third parties request access to tax information. All three measures passed the House with broad bipartisan support.
In addition to administrative improvements, lawmakers approved several bills focused on taxpayer relief. These include provisions to extend disaster-related tax deductions, exclude certain wildfire compensation from income, and ensure that non-punitive damages received are not subject to taxation. Other measures would expand eligibility for self-employment assistance programs, extend tax benefits to early childhood educators, and allow clergy members additional time to reconsider Social Security coverage elections.
The House also passed legislation to enhance the IRS whistleblower program, including provisions to require interest payments on awards, allow deductions for legal fees, and strengthen confidentiality protections. Lawmakers emphasized the growing importance of whistleblowers in supporting tax enforcement efforts, particularly amid resource constraints at the IRS. The bills now move forward for further consideration as part of ongoing efforts to improve tax administration and taxpayer support.
IRS Launces New ‘Tax Debt Help’ Online Tool
The Internal Revenue Service has introduced a new online tool, “Tax Debt Help,” aimed at assisting individuals and businesses in evaluating and resolving outstanding tax liabilities. As part of the agency’s broader push to expand digital self-service options, the tool walks users through a series of interactive questions about their financial situation without requiring sensitive personal information. Based on responses, it outlines potential resolution paths, including installment agreements, offers in compromise, or temporary delays in collection activity.
The tool is designed to simplify what can often be a complex and intimidating process, giving taxpayers a clearer understanding of available options before engaging directly with the IRS. By providing tailored guidance in a user-friendly format, the IRS aims to help taxpayers take more informed and proactive steps toward resolving their tax debts while reducing reliance on more time-intensive support channels. The new tool is available on the IRS website at https://bit.ly/4t57gLu
