Minnesota Tax Guide 2025

Minnesota State Tax: Overview

Minnesota has a progressive tax system, and has enacted recent policy changes that benefit low- to moderate-income households.

Under a progressive tax policy, low-income families are taxed at a lower rate than higher-income households.

Nationally, only six states plus the District of Columbia reserve the lowest overall tax rates for low-income taxpayers. Minnesota’s tiered income tax rates, and tax structure reduces inequality across some groups, according to the Institute on Taxation and Economic Policy (ITEP).

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In recent years, the Gopher State has enacted higher taxes on wealthy residents and corporations, and has provided more tax credits to low-income households.

For example, the state of Minnesota child tax credit is the largest in the country. At the same time, the state has one of the highest capital gains tax rates in the nation and is the only one that imposes a surtax on long-term capital gain income and other net investment income for high earners.

Here’s more of what you need to know about taxes in Minnesota.

[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 has a graduated state individual income tax rate ranging from 5.35% to 9.85%.

Minnesota retirement taxes

Minnesota income taxes in retirement: Minnesota is one of the states that still 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.

• Tax on Taxable Income: Low of 5.35% (on up to $31,690 for single filers and $46,330 for joint filers) and a high of 9.85% (on more than $193,240 for single filers and $321,450 for joint filers)
  • Social Security: Partially taxable
  • Pensions: Taxable (Minnesota allows a deduction for Military retirement pay)
  • 401(k) and IRA Distributions: Taxable

Minnesota sales tax

The state sales tax rate in Minnesota is 6.875%, but localities can add as much as 3% on top of the state's rate, according to the Tax Foundation. While Minnesota's sales tax rate is higher than most other states, many necessities are tax-exempt.

• Groceries: Exempt
• Diapers and many feminine hygiene products: Exempt
• Prescription drugs: Exempt

How much are property taxes in Minnesota?

In Minnesota, the average effective property tax rate is 0.99%, 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 gas tax

Source: Sales Tax Handbook

Minnesota taxes on alcohol and tobacco

Source: Sales Tax Handbook

Source: Sales Tax Handbook

Minnesota estate and inheritance taxes

Minnesota doesn’t have an inheritance tax. However, it does have estate taxes. There is an estate tax exemption of $3 million ($6 million for a married couple), and tax rates range from 13% to 16%.

Related Content

• Minnesota Child Tax Credit: How Much Will You Get?
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