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Minnesota Retirement Tax Friendliness

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Overview of Minnesota Retirement Tax Friendliness

Minnesota taxes Social Security retirement benefits and all other forms of retirement income. Sales taxes in the state are relatively high, while property taxes are close to average.

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You will pay of Minnesota state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Minnesota Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

If warm winters or low taxes are a priority for your retirement, Minnesota probably isn’t the state for you. It is one of the few states that taxes Social Security income. It also taxes other forms of retirement income while providing no deduction or exemption for seniors.

In other words, if you’re a retiree in Minnesota expect to pay taxes on your retirement income at rates from 5.35% to 9.85%. Sales taxes in the Land of One Thousand Lakes are relatively high, while property taxes are close to average.

A financial advisor in Minnesota can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial planning - including taxes, homeownership, insurance and estate planning - to make sure you are preparing for the future.

Is Minnesota tax-friendly for retirees?

Minnesota taxes Social Security income and all other forms of retirement income. Income tax rates in Minnesota are among the highest in the country, ranging from 5.35% to 9.85%.

Meanwhile, its sales and property taxes are not particularly low. The total state and average local sales tax rate is 7.46%. The average effective property tax rate is 1.08%, close to the national average. Minnesota also has an estate tax.

Is Social Security taxable in Minnesota?

Any Social Security income that is included in adjusted gross income (AGI) on your federal tax return will be subject to income tax in Minnesota. That income, in combination with any work income and all other retirement income, will be taxed at the rates shown in the table below.

Income Tax Brackets

Single Filers
Minnesota Taxable IncomeRate
​$0 - $26,9605.35%
$26,960 - $88,5506.80%
$88,550 - $164,4007.85%
​$164,400+9.85%
Married, Filing Jointly
Minnesota Taxable IncomeRate
​$0 - $39,1405.35%
$39,140 - $156,5706.80%
​$156,570 - $273,4707.85%
$273,470+9.85%
Married, Filing Separately
Minnesota Taxable IncomeRate
​$0 - ​$19,7055.35%
​$19,705 - $78,2856.80%
$78,285 - $136,7357.85%
$136,735+9.85%
Head of Household
Minnesota Taxable IncomeRate
$0​ - $33,1905.35%
$33,190 - ​$133,3606.80%
$133,360 - $218,5407.85%
$218,540+9.85%

Are other forms of retirement income taxable in Minnesota?

All other retirement income is taxable in Minnesota. But if you're 65 or older, you can deduct as much as $9,600 of your retirement income, or $12,000 for married filers. However, if you file single and your income is higher than $33,700 or your file joint and your income is higher than $42,000, then you're not eligible for this deduction. All other retirement income you receive while living in Minnesota will be taxed at the rates outlined in the table above.

How high are property taxes in Minnesota?

Minnesota property taxes are close to the national average. The typical Minnesota homeowner spends below $2,700 annually on property taxes. The state’s average effective property tax rate is 1.08%, which is just above national marks.

What is the Minnesota senior citizens property tax deferral program?

The Minnesota senior citizens property tax deferral program is a form of property tax relief available to seniors below a certain household income threshold. To qualify, you must be age 65 or older with a household income of $60,000 or less.

Homeowners who are enrolled in the program pay a maximum of 3% of their household income on property taxes each year. The state pays any remainder on your behalf. However, that excess tax amount is deferred and must eventually be paid back with interest. This is typically done with the proceeds of an eventual home sale.

Photo credit: ©iStock.com/GeorgePeters

How high are sales taxes in Minnesota?

The statewide sales tax rate in Minnesota is 6.88%. That's the sixth-highest statewide rate in the U.S. Additionally, cities and counties can collect their own taxes of up to 2%. On average, the total rate in Minnesota is 7.46%.

Those rates do not apply to all items, however. Most groceries and most types of clothing are exempt from the sales tax in Minnesota. All medicine, including both prescription and non-prescription drugs, is exempt from sales tax.

What other Minnesota taxes should I be concerned about?

Seniors who intend to leave any property or wealth to their loved ones may be affected by the Minnesota estate tax. The exemption on that tax increased to $3 million starting on Jan. 1, 2020. Estates with a value below the exemption amount will not be taxed. Tax rates for estates above that exemption range from 13% to 16%.