MINNESOTA
Return to Retiree Tax Map
NICKNAME
The North Star State
BOTTOM LINE: NOT TAX-FRIENDLY
Minnesota offers cold comfort on the tax front to retirees. Social Security income is taxed to the same extent it is on your federal return. Pensions are taxable regardless of where your pension was earned. Income-tax rates and the sales tax are high.
STATE SALES TAX
6.875%. Food, clothing, and prescription and nonprescription drugs are exempt. Liquor and beer are taxed at 9.375%. A few cities and counties also add a sales tax, which can be as high as 9.53%.
INCOME-TAX RANGE
Low: 5.35% (on less than $23,670 of taxable income)
High: 7.85% (on more than $77,730 of taxable income)
SOCIAL SECURITY
Social Security income is taxed by Minnesota to the same extent it is on your federal return.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Pensions, including federal pensions, are taxable by Minnesota regardless of where your pension was earned. Railroad Retirement benefits are not taxed by Minnesota. Taxpayers 65 and older may subtract some income if federal adjusted gross income is under certain limits.
PROPERTY TAXES
Property taxes in Minnesota are administered at the county level. Effective in 2012, 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.
Homeowners whose 2012 property-tax bill jumps by more than 12% from 2011 may claim a refund of 90% of the amount over the 12% increase. The maximum refund is $1,000.
Tax breaks for seniors: The Senior Citizen Property Tax Deferral Program allows people 65 years of age or older, whose household income is $60,000 or less, to defer a portion of their 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.
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.
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%.
Visit RetirementLiving.com for a complete rundown of taxes in Minnesota.
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