Minnesota’s top income tax bracket is incredibly high, but retirees can deduct some of their income to lessen the burden. Below, we explain various Minnesota state taxes affecting retirement income, such as sales tax, inheritance tax, and property taxes.
For information regarding taxes in other states, see Retirement Taxes by State.
Minnesota Tax Rates
|State Sales Tax||6.875%|
|Avg State/Local Sales Tax||6.49%|
|Gas Tax||$0.29 per gallon|
|Diesel Tax||$0.29 per gallon|
|Cigarette Tax||$3.04 per pack|
|Effective Tax Rate:||5.32%|
|Social Security Tax||Partial|
|Federal Income Tax Deduction:||None|
Minnesota State Taxes Explained
Minnesota Sales Tax
6.875%. Food, clothing, prescription and over-the-counter drugs are exempt. Local municipalities may add 2% to the state sales tax. There’s an additional 2.5% tax on alcohol.
Minnesota Income Taxes
Max rate of 9.85% on taxable income over $183,340 for single filers ($304,970 for joint filers).
Minnesota Property Taxes
The effective property tax rate in Minnesota is 1.12%. You’ll typically pay a bit more in urban areas and close to half that amount in rural communities. For example, you’ll pay 2,500 annually on a $223,900 home, the median home value in the state.
Minnesota’s Property Tax Deferral for Senior Citizens Program limits the tax liability to 3% of total household income from the previous year. The state pays the remainder as a loan with an interest rate of less than 5%. The loan is due for payment when the home is sold or the taxpayer cancels the deferral. This program places a lien on the property.
Seniors aged 65 and older qualify for the property tax deferral if:
- Household income is $60,000 or less
- The home has been homesteaded for the last 15 years
- The taxpayer owned and lived in the home for the last 15 years
- The property has no reverse mortgage, a life estate or state or federal liens attached
- Any other liens are less than 75% of the estimated market value
- If married, one spouse must be 65 or older and the other at least 62
Minnesota has two property tax refund programs for homeowners: the homestead credit refund for those with household income under $119,790 (subject to change annually) and the special homestead credit refund for taxpayers who have a net property tax increase by more than 12% (rate may change from year to year). The increased tax bill must not be due to improvements made to the property.
Minnesota renters who meet income requirements may qualify for the renter’s property tax refund.
Minnesota Retirement Taxes
Social Security benefits are taxable in Minnesota. In 2023, a married couple filing a joint return can deduct up to $5,840. The tax break can be as much as $4,560 for single and head-of-household filers, and up to $2,920 for married taxpayers filing separate returns. The deduction is gradually phased out for married couples with provisional income from $88,630 to $117,830 ($69,250 to $92,050 for single and head of household filers or $44,315 to $58,915 for married taxpayers filing separate returns).
Pension income and distributions from IRAs, 401(k) plans and other retirement accounts are taxed between 5.35% and 9.85%, depending on adjusted gross income (AGI).
Minnesota’s Age 65 or Older or Disabled Subtraction is available to those who were 65 or older by the end of the tax year. Taxpayers who had a permanent and total disability and received federally taxable disability income are eligible as well. Income limitations apply.
Military pensions are tax-exempt in Minnesota. Taxpayers with a military pension and federal adjusted gross income of $37,500 or less can claim a credit of up to $750.
Minnesota Estate and Inheritance Taxes
Minnesota has no inheritance tax. The estate tax ranges from 13% to 16% levied on all estates above $3 million. The rates adjust every year or two. Some estates are subject to a recapture tax. See Minnesota Estate Tax for details.
For more general tax information, visit the Minnesota Department of Revenue.