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Tool | August 2013

State-by-State Guide to Taxes on Retirees

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Minnesota

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The Bottom Line
Map of Minnesota

NOT 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 are high. As of 2013, the state added a new top income tax rate and bracket for high incomers. And midyear 2013, the state enacted a gift tax of 10%.

State Sales Tax

6.875%. Food, clothing, and prescription and nonprescription drugs are exempt. A few cities and counties also add a sales tax.

Income Tax Range

Low: 5.35% (on less than $24,270 of taxable income for single filers and on less than $35,480 for joint filers)

High: 9.85% (on more than $150,000 of taxable income for single filers and on more than $250,000 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 subtract some income if their federal adjusted gross income is under certain limits.

Property Taxes

Property taxes in Minnesota are administered at the county level. 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.

A state-paid refund provides property tax relief directly to eligible homeowners whose property taxes are high relative to their incomes. About one-third of homeowners will receive a refund in 2014, averaging $840.

A state-paid refund provides property tax relief directly to eligible renters whose rents are high relative to their incomes. About two-thirds of renters will receive a refund in 2014, averaging $600.

Homeowners whose 2014 property tax bill jumps by more than 12% from 2013 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 the state's median home value of $200,400 is $2,098, 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 million. The maximum estate tax rate is 16%.

As of July 1, 2013, the state added a gift tax of 10%, with a lifetime credit of $100,000 and an annual exemption amount indexed for inflation (for 2013, it's $14,000 per recipient). Also, taxable gifts made within three years of the decedent's death are added back to determine if the estate exceeds the $1 million exemption.

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