State-by-State Guide to Taxes on Retirees
Tool | December 2020

Minnesota State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Minnesota

Add to State Compare List | View List
(0) selected | Compare up to 5

The Bottom Line
Flag of Minnesota

Not Tax-Friendly

The North Star State offers cold comfort on the tax front to retirees. Social Security benefits are taxable to the same extent as they are on your federal return, though taxpayers with taxable Social Security benefits can deduct some of their payments if their income is below a certain amount. There is also a special income tax deduction for certain senior citizens. But pensions are taxable, unless they're from the military. Distributions from IRAs and 401(k) plans are taxed, too.

Property tax rates are slightly above average in Minnesota. But the state's Senior Citizen Property Tax Deferral Program allows certain people age 65 or older to defer a portion of the property tax on their home.

Sales tax rates in Minnesota are above average, too. Plus, the state imposes an estate tax.

Income Tax Range

Low: 5.35% (on less than $26,960 of taxable income for single filers and on less than $39,410 for joint filers)

High: 9.85% (on more than $164,400 of taxable income for single filers and on more than $273,470 for joint filers)

For 2021, the 5.35% rate applies to taxable income less than $27,230 for single filers and less than $39,810 for joint filers. The 9.85% rate applies to taxable income over $166,040 for single filers and over $276,200 for joint filers.

Taxation of Social Security Benefits

Social Security benefits are taxable in Minnesota, but for 2020 a married couple filing a joint return can deduct up to $5,240 of their federally taxable Social Security benefits from their state income. The 2020 tax break can be as much as $4,090 for single and head of household filers, and up to $2,620 for married taxpayers filing separate returns. The deduction is phased out for married couples with more than $79,480 of provisional income (it's reduced to zero for couples with more than $105,680 of provisional income). The phase-out range for single and head of household filers is $62,090 to $82,540. For married taxpayers filing separate returns, the phase-out range is $39,740 to $52,840.

Tax Breaks for Other Retirement Income

Income from a military retirement plan is exempt. In the alternative, taxpayers with federal adjusted gross income of $37,500 or less who have a military pension can claim a credit of up to $750.

Taxpayers 65 and older can deduct up to $9,600 for single filers or $12,000 for joint filers. The deduction is phased out for taxpayers making more than $14,500 (single) or $18,000 (joint). Taxpayers making more than $33,700 (single) or $42,000 (joint) cannot claim the deduction.

Railroad Retirement benefits are also exempt.

Sales Tax

6.875% state levy. Localities can add as much as 2%, with an average combined rate of 7.47%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Exempt
Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 6.5% excise tax ($10 for certain older vehicles; $150 for certain collector vehicles)
Prescription Drugs: Exempt

Real Property Taxes

In Minnesota, the median property tax rate is $1,082 per $100,000 of assessed home value.

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 that has to be paid to 3% of total household income; the state pays the rest, as a loan. Interest, at an annually adjusted rate not to exceed 5%, will be charged on this loan, and a lien is attached to the property.

Annual Car Taxes and Fees

An annual vehicle registration tax based on the car's sticker price (MSRP) and age is imposed.

Estate and Inheritance Taxes

Minnesota's estate tax exemption is $3 million, but the state looks back to include any taxable gifts made within three years prior to death as part of your estate. Tax rates range from 13% to 16%.

Advertisement