Minnesota Tax Guide

Minnesota State Tax: Overview

Minnesota's state income tax rates start at a high 5.35%, and sales tax rates are on the high end when compared to other states. Additionally, Minnesota has an estate tax that applies to estates over $3 million, which is a lower threshold than for estates subject to the federal estate tax. However, the state recently introduced a Minnesota child tax credit, and it is the highest in the country.

[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]

Minnesota income tax

Minnesota's income taxes are relatively high, and the state only has four income tax brackets, meaning some taxpayers with lower incomes could pay the same tax rate as those earning significantly more.

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For example, a single filer with $32,000 of taxable income pays the same tax rate as a single filer with $95,000 of taxable income.

Minnesota income taxes in retirement: Minnesota is one of the states that tax Social Security. Private and government pension plans are taxable, but Minnesota offers an income tax subtraction for military pensions. Railroad Retirement benefits are tax-exempt in Minnesota.

Minnesota Income Tax Range: Single filers

Minnesota Income Tax Range: Married filing separately

Minnesota Income Tax Range: Married filing jointly

Minnesota Income Tax Range: Head of household

Minnesota sales tax

The state sales tax rate in Minnesota is 6.875%, but localities can add as much as 2.15% on top of the state's rate, according to the Tax Foundation. While Minnesota's sales tax rate is higher than most other states, plenty of necessities are tax-exempt.

• Groceries are tax-exempt.
• Diapers and many feminine hygiene products are tax-exempt.
• Prescription drugs are tax-exempt.

How much are property taxes in Minnesota?

In Minnesota, the average effective property tax rate is 1.05%, and the median property tax bill is $3,000.

Minnesota Property Tax Breaks for Retirees

Property Tax Deferral Program: This program allows people age 65 or older, whose household income is $96,000 or less, to defer a portion of the property tax on their home. Here's how it works:

• The homeowner pays 3% of the household's prior year income.
• The state pays the amount over 3% (deferred tax), which becomes a loan.
• Homeowners will have a lien attached to their property.
• The loan will accrue interest but will not exceed 5%.

(Note: Homeowners may need to meet other criteria to qualify.)

Also, starting January 1, 2025, the maximum homestead property exclusion In Minnesota will increase by $7,600 to $38,000. It applies to homesteads valued at $95,000 or less; the exclusion is 40% of the property's market value.

Minnesota motor fuel (gasoline) taxes

Gasoline: $0.285 per gallon

Diesel: $0.285 per gallon

Minnesota taxes on alcohol and tobacco

Minnesota estate and inheritance taxes

Minnesota's estate tax exemption is $3 million ($6 million for a married couple), and tax rates range from 13% to 16%.

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