What is in $3 billion tax deal made by Minnesota Democrats?

One-time rebates. Tax credits for families. Social Security tax cuts. More money for local governments. Tax hikes for some.

After weeks of negotiations, DFLers struck a deal on $3 billion in tax cuts, a proposal that still needs to pass both chambers. They praised the final proposal as one that puts money back into Minnesotans' pockets while giving extra to low-income families, local communities, homeowners and renters.

"There are really incredible, transformational things in this bill that will benefit people across the state," said House Taxes Chair Aisha Gomez, DFL-Minneapolis.

But the tax cuts in the bill apply only to some Minnesotans, and others face tax increases. Reacting to the deal on Thursday, Republicans said it's unacceptable for Democrats to raise any taxes while the state has a projected $17.5 billion budget surplus.

"Hold on to your billfolds," said Sen. Bill Weber, R-Luverne, who sits on the Tax Conference Committee. "While they will tout it as a record amount of tax refunds to the people of Minnesota, the reality is the people who helped create the surplus are getting very little out of it."

Here's what you need to know about who gets what in the tax deal agreed to by Democrats.

Tax rebates

Single Minnesotans who make up to $75,000 a year can get a one-time refundable tax credit of $260, and married joint filers who make up to $150,000 a year get $520.

Families who meet those income thresholds are also eligible for an additional $260 per child, up to three children, for a maximum of $1,300. The plan will cost the state more than $1.1 billion.

The final agreement on the one-time tax rebates is smaller than the $1,000 for individuals and $2,000 for married couples that Gov. Tim Walz proposed. Republicans had pitched $1,250 checks for individuals and $2,500 for joint filers, with no income limits, which would have cost $5 billion.

Social Security tax cut

Couples earning up to $100,000 each year in federal adjusted gross income would be fully exempt from taxes on their Social Security benefits, with that exemption phasing out at $140,000 in income. Single filers making up to $78,000 will also be exempt from those taxes, with the exemption phased out at $118,000.

Some Democrats campaigned on fully exempting Social Security income from taxes, noting that Minnesota is surrounded by states that don't tax those benefits. But DFL negotiators backed away from that idea, concerned about the $1.3 billion price tag over the next two years.

Tax increases

Democrats raise taxes in the bill, much of that from conforming to a federal provision that taxes some profits from corporations with business overseas, known as global intangible low-taxed income, or GILTI. Democrats also changed itemized deductions for higher-income earners.

Those proposals, along with several other smaller tax increases, will raise $1 billion in new revenue in the next two-year budget, and another $1.2 billion over the following two years. Democrats had previously considered a new worldwide combined reporting requirement and fifth-tier income tax, but neither of those proposals made it into the final deal.

"Instead of making MN more competitive to encourage growth and investment, this adds additional headwinds," tweeted Beth Kadoun, a lobbyist with the Minnesota Chamber of Commerce.

New child tax credit

DFL legislative negotiators included the new credit, which they estimate will cut childhood poverty in the state by nearly 25%. It will provide families with $1,750 per dependent, which will start phasing out at $35,000 in annual income for couples.

Walz pushed for the new credit, calling it potentially "the most felt of anything that any state has done around taxes, maybe in a generation, that is going to happen in Minnesota."

Local and tribal aid

Aid to local governments and aid to counties will each increase by $80 million. The deal also includes a one-time infusion of $300 million for municipalities to help them cover public safety costs. Tribal nations will get $105 million in new aid over the next four years, a measure pushed by House Democrats.

Roughly two dozen communities will also have the option to pursue a local option sales tax increase. The House initially opposed those requests from local governments, but the two chambers agreed to a two-year moratorium on approving other local sales tax options.

Aid for renters and homeowners

Homeowners and renters would see a one-time boost to their property tax refunds. And adjustments would be made to the renter's income tax credit, which you would claim at the same time you file your income taxes, with those changes expected to amount to nearly $379 million over the next two years.

The bill also expands homestead eligibility to Minnesotans with an Individual Taxpayer Identification Number (ITIN) and reduces co-pays on the homestead credit refund.

Staff writer Jessie Van Berkel contributed to this report.