Tool | November 2018

State-by-State Guide to Taxes on Retirees

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 (albeit with a small, income-limited exemption). Most pensions are taxable, although military pensions are exempt. Income tax rates and the sales tax rate are high.

State Sales Tax

6.875% state levy. Localities can add as much as 2%, with an average combined rate of 7.43%, according to the Tax Foundation. Most clothing and footwear are exempt.

Income Tax Range

Low: 5.35% (on less than $25,890 of taxable income for single filers and on less than $37,850 for joint filers)

High: 9.85% (on more than $160,020 of taxable income for single filers and on more than $266,700 for joint filers)

Social Security

Social Security income is taxable, but a married couple can subtract $4,500 of their federally taxable Social Security benefits from their state income. (The break is $3,500 for single and head of household, $2,250 for married separate filers). Make more than $77,000 of income (for married filers) and the break gets phased out, and is gone for those with more than $99,500 of taxable income.

Exemptions for Other Retirement Income

Most pensions, including federal pensions, are taxable by Minnesota; military pensions are exempt, as are Railroad Retirement benefits. Taxpayers 65 and older may exempt up to $9,600 for single filers and up to $12,000 for joint filers if their income falls under certain limits. The exemption is phased out for those making more than $14,500 (single) and $18,000 (joint). Those making more than $33,700 (single) and $42,000 (joint) are ineligble.

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

The median property tax on Minnesota’s median home value of $191,500 is $2,234.

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 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.

Vehicle Taxes

6.5% sales tax is due at purchase (slightly below general sales tax, and no local tax is computed).

Inheritance and Estate Taxes

Minnesota’s estate-tax exemption of $2.4 million in 2018 will rise to $2.7 million in 2019 and $3 million in 2020. But taxable gifts made within three years prior to death are considered part of the estate. Rates range between 5.6% - 16%.

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