Praised as the Land of 10,000 Lakes, residents of Minnesota have no shortage of beauty to explore — but how much do you have to pay in MN taxes in order to call the state home? Whether you live in the bustling metropolis of the Twin Cities, on the coast of Lake Superior, or near the Canadian border, you’ll be responsible for a Minnesota state income tax, sales tax, property tax, and more. Read about each in detail and use our free Minnesota state tax calculator to estimate your annual burden.

Most people are aware of their federal tax obligation paid and collected through the Internal Revenue Service (IRS). Unless you’re required to pay self-employment tax, your employer likely deducts a portion of your taxes from each paycheck based on the information you provide on Form W-4, then submits payments directly to the IRS.

Taxpayers who meet the minimum income requirement must file a federal tax return by the deadline in mid-April each year. This informs the IRS as to whether you’re owed a tax return for the money you contributed throughout the year, or if you have outstanding tax debt that is not yet settled in full.

What many people aren’t aware of, however, is that in addition to a federal income tax, many states also charge their own taxes independent of the IRS. They have their own taxing agency (in this case, the Minnesota Department of Revenue) that assesses various taxes in accordance with the state’s legislation.

Similar to the federal tax code, many states offer standard deductions, exemptions, and credits to offset the financial burden. However, which taxes to impose — and how much to charge — is left up to the state’s lawmakers, meaning that some states are tax-friendlier than others.

So how do taxes in The North Star State shape up to the rest of the nation? Take advantage of our Minnesota tax calculator to see what residents can expect to pay in income, sales, and property taxes, then read on for an in-depth overview of each.

Minnesota uses a progressive income tax system, just like the federal tax code; the more you earn, the higher the amount of taxes you will owe. This is designed to avoid placing undue stress on low-income families while ensuring top earners contribute their fair share, as opposed to states with a flat tax rate that applies to everyone universally — no matter how much or how little you make.

Under President Trump’s tax reform plan, The Tax Cuts and Jobs Act (TCJA) 2017, there are several federal tax brackets and each has its own corresponding rates ranging from 10% to 39.6% depending on your income level. The Minnesota state income tax, alternatively, has four different brackets: 5.35%, 6.80%, 7.85%, and 9.85%.

There are four different tax filing statuses that could affect the marginal rate you pay: head of household, single, married filing jointly, and married filing separately.

For example, if you’re filing a single income tax return in the state of Minnesota, you will pay 5.35% on every dollar you earn up to $26,960; after that, the higher tax rate will kick in and apply to dollars earned past $26,960 up to $88,550.

Say you earned $90,000 in a given year; the $1,450 that falls into the third tax bracket would be taxed at 7.85% in addition to each marginal tax rate you’re assessed up until that point. This trend would continue until you reach the fourth bracket and any dollar earned over $164,400 would pay the top rate of 9.85%.

This breakdown isn’t the same for married couples filing a joint tax return. In their circumstance, they wouldn’t pay the top Minnesota tax rate until earning more than $273,470 in a fiscal year. It’s wise to talk to a tax professional who can help you determine the best filing strategy.

What’s considered “taxable” income in Minnesota? It’s a good question, since taxable federal income may differ at the state level depending on where you live. Some states — like Texas, Florida, and Tennessee — don’t consider income taxable at all.

Unfortunately, if you’re a permanent resident of Minnesota for a full-year, you’ll be responsible for paying a state tax on all of your personal income using Form M1, Individual Income Tax. Residents who move to the state mid-year will only be responsible for paying income tax on Minnesota sources unless you receive income from non-Minnesota sources after moving to the state.

Note: Even if you’re a permanent resident elsewhere, you may still be required to pay MN tax on all income if you meet the 183-day rule and rented, owned, occupied, or maintained an abode in Minnesota for the year.

To calculate state taxes, you first need to determine your Minnesota Taxable Income (MTI). As of 2019, MN now uses the Federal Adjusted Gross Income as the starting point to calculate MTI using this formula:

Federal Adjusted Gross Income (FAGI)

• + Minnesota Additions
• - Minnesota Dependent Exemptions
• - Standard or Itemized Deductions
• - Other Minnesota Subtractions
• = Minnesota Taxable Income (MTI)

Your FAGI includes deductions for certain “adjustments to income” such as health savings account contributions, student loan interest, educator expenses, and more. Make sure to find every adjustment available to you in order to reduce your amount of taxable income when filing your return.

Most income is earned through wages, however, capital gains are a form of unearned income you will have to pay taxes on while living in The North Star State. They refer to the profits you make off the sale of a capital asset such as a home or stocks.

At the federal level, taxpayers receive a break on “long-term” capital gains applied to assets held for at least a year or more, but the tax rate is higher on short-term capital gains. Minnesota, alternatively, does not show preferential treatment for capital gains income; it includes all capital gains in taxable income and subjects it to the same four tax brackets.

This is different from the way some other states treat capital gains in their tax code. There are nine states — including Hawaii, Vermont, and Montana — who tax capital gains at a lower rate, exclude a portion as taxable income, or provide a credit. Keep these considerations in mind before making any investment decisions in Minnesota.

Taxes in Minnesota aren’t just assessed on money coming in — they’re also imposed on money going out via state-mandated sales tax. Sales tax in Minnesota starts at 6.875% and applies to the transaction of certain goods and services.

Local municipalities have the option to assess additional sales tax on top of the state’s, so depending on where you live or shop, you may have to pay extra for the county tax (0% to 1%), city tax (0% to 1%), and special rate tax (0% to 1.5%).

As of January 1, 2020, the cheapest place to shop in Minnesota is Anoka County where the sales tax rate is 7.125%. The Jmost expensive rate in the state is 8.875% for sales tax in Duluth, a major port city in Minnesota and a huge source of its economy.

Keep in mind that the MN sales tax rate may vary depending on the type of person, with special rates that apply to sales on admissions, entertainment, lodging accommodations, and food/beverages (including restaurants).

Apart from traditional sales tax, states levy excise taxes on the transaction of specific items. Commonly referred to as “sin taxes”, these typically apply to products that are deemed harmful to consumers and to society at large, such as alcohol and tobacco.

Whereas sales tax applies an assigned rate to the total sale price of a good or service, excise taxes are different in that they are assessed as a flat, per-unit fee. They take place at the wholesale stage of the transaction, but retailers commonly pass this charge onto consumers at the point of sale.

Minnesota Alcohol Tax

The Alcoholic Beverage Tax in Minnesota is an excise tax applied to beer, malt beverages, wine, and distilled spirits that are manufactured, imported, or sold within the state. Each alcoholic beverage category has its own tax rate. For example, you probably won’t notice the extra 15 cents that’s applied to every gallon of beer, or the 30 cent tax assessed on each gallon of wine. However, the Minnesota liquor tax is one of the highest in the country at $5.03 per gallon.

Interestingly, The North Star State doesn’t take as hard a stance against low-alcohol dairy cocktails, which carry an excise tax of $0.08 per gallon compared to the steeper rate assessed to distilled spirits, liqueurs, cordials, and specialties. Malt beverages under 3.2% ABV have a tax of $2.40/keg, whereas anything stronger than that is taxed at $4.60/keg.

As you can see, excises taxes are used as a tool to get retailers and their customers to do or buy less of one thing in favor of an alternative favored by the state.

Minnesota Tobacco Tax

Tobacco endangers your health, so Minnesota adds an additional excise tax on tobacco-related products in order to deter consumers from picking up a pack — and the rate is steep at anextra $3.05 per pack of 20 cigarettes, the 7th highest cigarette tax in the country.

Note that all tobacco-related products are subject to an additional excise tax in Minnesota which is currently 95% of the wholesale price. This includes e-cigarettes e-cigarette juice cartridges, and it’s added on top of the federal excise tax on tobacco ($1.01/pack).

Minnesota Marijuana Tax

Marijuana is not legalized for recreational use in Minnesota, but lawmakers are pushing to join states like Colorado and California who recently decriminalized the substance. If Minnesota does decide to legalize recreational marijuana, it’s estimated that doing so could produce $1.12 billion in sales and $300 million in excise tax revenue within five years’ time.

Minnesota Fuel Tax

Gasoline isn’t necessarily “bad”, per se, but it is a finite resource that carries additional taxation at the state and federal levels. Fuel producers and vendors in Minnesota have to pay an additional $0.29 per gallon, but this tax is passed onto the consumer in the retail price at the pump. Excise taxes on gasoline support the Federal Highway Administration as well as construction projects on local infrastructure.

The Affordable Care Act — also known as Obamacare — has not been officially struck down and still technically requires Americans to have health insurance. However, the tax penalty has been “zeroed out”; this means that although you must disclose your coverage status on your return, you will no longer incur a penalty fee for being uninsured.

Many states have adopted their own versions of Obamacare and passed laws regarding health care requirements and tax penalties, but as of 2020, Minnesota is not one of them.

With all of its breathtaking scenery and abundant, natural beauty, there are over 10,000 reasons why one might want to plant their roots in The North Star State — but in order to do so, you’ll be required to pay Minnesota property taxes.

As it turns out, the sub-freezing temperatures that return with every winter aren’t enough to keep MN homeowners away. They’re willing to pay an average effective property tax rate of 1.15% which is close to but higher than the national average of 1.08%.

Note: “Effective” rate refers to what percentage, on average, of the home’s assessed market value is paid in property taxes. In order to estimate Minnesota property taxes, you will need to calculate the levy based on net tax capacity. Follow this formula:

• Start with your home’s assessed market value.
• Subtract market value exclusions from your home’s actual value, which are excluded from taxation.
• The most common exclusion available to an owner-occupied primary residence is the Homestead Equation (valued up to $30,400 depending on the home’s value).
• This exclusion is unavailable to owners whose home has a market value of $413,800.
• There is also a market value exclusion of up to $300,000 available to qualifying veterans, their caregivers, and their surviving spouses.
• Multiply the remaining taxable market value by the property’s class rate.
• The class rate in Minnesota depends on the type of property (homestead, apartment, cabin, farm, etc.).
• The rate for the residential homestead class is 1.0% on the first $500,000 then 1.25% on any market value above $500,000.
• The resulting net tax capacity is the value to which taxes are applied.

The levy on a property’s net tax capacity is set by the local tax rate. Local property taxes in Minnesota are used to fund programs and services such as public schools, fire and police protection, streets, infrastructure, libraries, and more.

They provide the state with consistent revenue, but that doesn’t mean rates are consistent across counties. They can vary dramatically, dipping as low as 0.54% in rural Aitkin County and reaching up to 1.31% in the urban Hennepin district where over 20% of Minnesota’s population lives.

Recent news reports indicate that property levies are on the rise, so be sure to plan for your annual financial burden using our Minnesota tax calculator, or speak to a team member for assistance.

Minnesota does not have an inheritance tax and they repealed their gift tax in 2014. However, they do levy an estate tax onto all of the assets of a descendent before they’re distributed to beneficiaries.

In 2020, the new exemption amount is $3 million, up from $2.7 million in 2019 and $2.4 million in 2018. That means only estates valued over $3 million are subject to taxation upon the resident’s passing.

Even though these numbers are on the rise, the threshold is still significantly lower than the federal estate tax exemption — which doubled from 2017 ($5.49 million) to 2018 ($11.18 million) under the TCJA. As of January 2019, the exemption at the federal level increased again to $11.4 million — but even though you may not have to pay the IRS an estate tax, you might be required to pay the MN Dept. of Revenue.

The good news is that there are many tax credits in Minnesota you may qualify for in order to reduce your state tax bill. Some of the most common ones claimed by taxpayers in The North Star State include:

• The Working Family Credit (WFC) is similar to the federal Earned Income Tax Credit (EITC), but it’s structured as a percentage of income rather than a percentage of the federal credit.
• The K-12 Education Subtraction and K-12 Education Credit may lower taxes and provide larger returns to families with children in school.
• MN Child and Dependent Care Credits offset care expenses for one or more qualifying persons.
• Those who purchased insurance to provide long-term care for themselves or their spouse may be able to claim a credit equal to 25% of the policy premiums (up to $100 per beneficiary, and $200 max per household).
• Licensed teachers in MN pursuing a Master’s degree in their field may be eligible for a nonrefundable tax credit.
• Beginning farmers who meet the requirements can receive a tax credit of up to $1,500.

These are only a few examples of the long list of Minnesota tax credits you may be able to claim on your return. Talk to a pro at Community Tax to make sure you don’t leave any money sitting on the table this tax season.

Federal law suspended personal and dependent exemptions, but they’re still allowed by Minnesota tax law. You may claim $4,250 per exemption for:

• Yourself
• Any qualifying dependents
• Your spouse (if married filing jointly with income below $291,950)

Eligibility for an exemption depends on your filing status. If you are filing single, then you cannot earn more than $194,650; head of household, $243,300; and married filing separately, $145,975.

The amount you may claim in the standard deduction also depends on filing status; take a look at the table below to see how much you may be entitled to.

Taxpayers also have the option to claim an itemized deduction in the sum amount of each line item. Regardless of whichever filing strategy you choose, you are also entitled to Minnesota tax subtractions that lower your FAGI and reduces your income taxable in Minnesota.

Just a few examples of subtractions you might be able to claim include:

• Contributions to a First-Time Homebuyer Savings Account
• Charitable contributions
• Age 65+ or disabled taxpayer
• Organ donation
• Net operating losses

Be sure to carefully go over your financial records with your tax professional to verify that you claim every possible deduction and subtraction available to you and reduce your taxable income to the lowest dollar.

Once you calculate your MTI by applying the state tax credits, exemptions, deductions, and subtractions to your FAGI, you can begin to calculate your Minnesota tax refund — if you are entitled to one, that is. To determine the size of your refund (or, alternatively, tax bill), compare how much you paid in taxes reported on Form W-2 versus how much you owe in MN income tax.

Pro tip: Don’t forget to add any applicable additions to your in-state taxable income. Additions fall into two categories: income that is exempt from taxation at the federal level (interest from municipal bonds of another state or local government; capital gains portion of a lump-sum distribution); and Minnesota’s nonconformity to federal law (suspended losses; Section 179 and bonus depreciation additions; fees, fines, penalties deducted as a business expense).

If you are not due a refund and instead owe Minnesota state taxes, you have several payment options available to you.

It’s in your interest to pay your tax bill by the April 15th deadline; if you don’t think you can make your payment, file for an extension in advance or set up a payment plan with the MN Dept. of Revenue. Otherwise, the interest you incur on fees and penalties for late filing and past-due payments can add up rather quickly.

If you find yourself overwhelmed with back taxes, Community Tax can help. Talk to one of our team members about tax resolution opportunities that may be available to you.

Stay in good standing with Minnesota state taxes, but remember that this is only one portion of your civic tax-paying duty. Make sure you have enough money set aside to pay your taxes in full by adding our federal income tax calculator to your financial planning.

This information is accurate as of 2019. Special circumstances that can affect your tax return may apply. Read more about the topics discussed above by referring to the resources below.