Tool | November 2017

State-by-State Guide to Taxes on Retirees


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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 (though some relief is being offered starting in 2017.) Most pensions, are taxable, though a new tax break makes military pensions exempt. Income tax rates and the sales tax rate are high.

State Sales Tax

6.875% state levy. Localities can add as much as 1.5%, with an average combined rate of 7.30%, according to the Tax Foundation. Most clothing and footwear are exempt.

Income Tax Range

Low: 5.35% (on less than $25,390 of taxable income for single filers and on less than $37,110 for joint filers)

High: 9.85% (on more than $155,911 of taxable income for single filers and on more than $261,510 for joint filers)

Effective income tax rate: 5.8%/individual, 6.6%/joint

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

Railroad Retirement benefits are not taxed by Minnesota. Most pensions, including federal pensions, are taxable by Minnesota; military pensions are exempt. Taxpayers 65 and older may exempt up to $9,000 for single filers and up to $18,000 for joint filers if their income falls under certain limits.


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

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. For a homestead valued at $413,800 or more, there is no exclusion.

The Homestead Credit Refund provides property tax relief directly to eligible homeowners whose property taxes are high relative to their incomes. The maximum refund is $2,620.

A state-paid refund provides property tax relief directly to eligible renters whose rents are high relative to their incomes. The maximum renter's refund is $2,030.

Homeowners whose 2015 property tax bill jumps by more than 12% from 2014 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.

The median property tax on Minnesota's median home value of $188,300 is $2,148.

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, though it has been easing its burden. Midyear in 2017, the state raised the 2017 exemption to $2.1 million, rising to $2.4 million in 2018, $2.7 million in 2019, and $3.0 million in 2020. Rates range from 12 percent to 16 percent; bottom rate increases to 13 percent in 2018.