State-by-State Guide to Taxes on Retirees
Tool | December 2021

Minnesota State Tax Guide for Retirees

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


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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 $27,230 of taxable income for single filers and on less than $39,810 for joint filers)

High: 9.85% (on more than $166,040 of taxable income for single filers and on more than $276,200 for joint filers)

For 2022, the 5.35% rate will apply to the first $28,080 of taxable income for single filers and the first $41,050 of taxable income for joint filers. The 9.85% rate will apply to taxable income over $171,220 for singles and over $284,810 for married couples filing jointly.

Taxation of Social Security Benefits

Social Security benefits are taxable in Minnesota, but for 2021 a married couple filing a joint return can deduct up to $5,290 of their federally taxable Social Security benefits from their state income ($5,450 for 2022). The 2021 tax break can be as much as $4,130 for single and head-of-household filers ($4,260 for 2022), and up to $2,645 for married taxpayers filing separate returns ($2,725 for 2022). The deduction is gradually phased out for married couples with provisional income from $80,270 to $106,720 ($82,770 to $110,020 for 2022). The phase-out range for single and head of household filers is $62,710 to $83,360 ($64,670 to $85,970 for 2022). For married taxpayers filing separate returns, the phase-out range is $40,135 to $53,360 ($41,385 to $55,010 for 2022).

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 7.49%, 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

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%.