‘Simple fix’ would stop taxing half of veterans’ civil service pensions

Despite a 2016 law to stop taxing military pensions in Minnesota, not every veteran is getting the break they – or the Legislature – thought they would.

The state is still taxing pensions of veterans who have gone on to work for the federal government in civilian roles because the pensions often become tied together and the state Department of Revenue can’t distinguish the difference. Rep. Anna Wills (R-Rosemount) called it “an unintended consequence” of the previously passed law – and “several” veterans “have been denied” the benefit.

Wills sponsors HF3934, which would expand the income tax subtraction to cover half of the pension income received through the Federal Employee Retirement System or the Civil Service Retirement System, if it includes military service credit.

The House Veterans Affairs Division approved the bill Monday, sending it to the House Taxes Committee.

Its companion, SF3548, sponsored by Sen. Greg Clausen (DFL-Apple Valley), awaits action in the Senate Taxes Committee.

WATCH House Veterans Affairs Division discussion of the bill 

Don Sinnwell spoke on behalf of his father-in-law, a 20-year military veteran who worked at Fort Snelling for 20 years, saying they reached out to the IRS and state and couldn’t find a solution to the problem.

“When you go from the military to the civil service, they roll your time and your pension and everything into the civil service,” Sinnwell said. “When you retire, it appears that you have 40 years of civil service when in reality you have 20 years of military, 20 years of civil service.

“It’s a simple fix,” he said. “This would save time and money and effort on everybody’s part.”