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Tool | October 2015

State-by-State Guide to Taxes on Retirees

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Minnesota

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The Bottom Line
Map of Minnesota

Least Tax-Friendly

One of Kiplinger's top ten least tax-friendly states for retirees, the North Star State offers cold comfort on the tax front to retirees. Social Security income is taxed to the same extent as it is on your federal return. Pensions are taxable regardless of whether they are military, government or private pensions. Income tax rates and the sales tax rate are high.

State Sales Tax

6.875%. Food, clothing, and prescription and nonprescription drugs are exempt. A few cities and counties also add to that, bringing the state's average rate to 7.3%, according to the Tax Foundation.

Income Tax Range

Low: 5.35% (on less than $25,070 of taxable income for single filers and on less than $36,650 for joint filers)

High: 9.85% (on more than $154,951 of taxable income for single filers and on more than $258,261 for joint filers)

Social Security

Social Security income is taxed by Minnesota to the same extent as it is on your federal return.

Exemptions for Other Retirement Income

Railroad Retirement benefits are not taxed by Minnesota. Pensions, including federal pensions, are taxable by Minnesota. Taxpayers 65 and older may exempt up to $9,000 for single filers and up to $18,000 for joint filers as of 2014 if their income falls under certain limits.

IRAs

Qualifies for exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for exemption.

Private Pensions

Qualifies for exemption.

Public Pensions

Qualifies for exemption.

Property Taxes

Minnesota homeowners may use the Homestead Market Value Exclusion to reduce the amount subject to taxation. The amount of the exclusion is $30,400, minus 9% of the home's value greater than $76,000. For a homestead valued at $413,800 or more, there is no exclusion.

The Homestead Credit Refund provides property tax relief directly to eligible homeowners whose property taxes are high relative to their incomes. The maximum refund is $2,620.

A state-paid refund provides property tax relief directly to eligible renters whose rents are high relative to their incomes. The maximum renter's refund is $2,030.

Homeowners whose 2015 property tax bill jumps by more than 12% from 2014 may claim a refund of 60% of the amount over the 12% increase. The maximum refund is $1,000.

The Market Value Exclusion for Disabled Veterans allows qualifying disabled veterans, their caregivers and surviving spouses to exclude as much as $300,000 in home value from taxation.

Median property tax on Minnesota's median home value of $180,100 is $2,148, according to the Tax Foundation.

Tax breaks for seniors: The Senior Citizen Property Tax Deferral Program allows people age 65 or older, whose household income is $60,000 or less, to defer a portion of the property tax on their home. The program limits the maximum amount of property tax to 3% of total household income. The deferred tax is paid by the state to the county. Interest, at an annually adjusted rate not to exceed 5%, will be charged on this loan, and a lien will attach to your property.

Inheritance and
Estate Taxes

Minnesota has no inheritance tax. But it does have an estate tax, with an exclusion of $1.4 million in 2015, and increasing gradually to $2 million in 2018. The maximum estate tax rate is 16%.

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