State-by-State Guide to Taxes on Retirees - Minnesota
Tool | November 2019

State-by-State Guide to Taxes on Retirees

Minnesota

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The Bottom Line
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Least Tax-Friendly

The North Star State offers cold comfort on the tax front to retirees. Social Security income is taxable to the same extent as it is on your federal return, though taxpayers with taxable Social Security income can deduct up to $5,150 for joint filers, up to $4,020 for single filers, and up to $2,575 for married taxpayers filing a separate return. Pensions are also taxable, unless they’re from the military. Distributions from IRAs and 401(k) plans are taxable, too.

There is a special income tax deduction for certain senior citizens. Taxpayers 65 and older can deduct up to $9,600 for single filers or $12,000 for joint filers. However, due to the deduction’s phased-out rules, seniors making more than $33,700 (single) or $42,000 (joint) can’t claim this tax break.

Property tax rates are slightly above average in Minnesota. For a $400,000 home in the state, the owner would pay about $4,897 per year. The state’s 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.

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)

Effective tax rate: 5.35% for single filers, 6.53% for joint filers.

Social Security

Social Security benefits are taxable in Minnesota, but a married couple filing a joint return can deduct up to $5,150 of their federally taxable Social Security benefits from their state income. The tax break can be as much as $4,020 for single and head of household filers, and up to $2,575 for married taxpayers filing seprate returns.

Exemptions 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.

Property Taxes

In Michigan, residents pay an average of $1,729 in taxes per $100,000 of assessed home value.

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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