Taxation and Regulatory Compliance

How Much Does Minnesota Take Out for Taxes?

Understand the comprehensive system of taxation in Minnesota and its financial implications for individuals.

Minnesota’s tax system encompasses various levies that contribute to the state’s revenue, impacting residents and non-residents earning income within its borders. The state’s approach to taxation involves a combination of income, sales, and property taxes, alongside other specific levies. These taxes collectively fund public services and programs across Minnesota, reflecting the state’s fiscal priorities and economic landscape.

Understanding Minnesota Income Tax

Minnesota operates a progressive individual income tax system. Residents, part-year residents, and non-residents earning income from Minnesota sources are generally subject to this tax. For the 2024 tax year, the state features four income tax brackets, with rates ranging from 5.35% on the lowest tier of taxable income up to 9.85% for the highest income levels. These income thresholds are adjusted annually for inflation to prevent taxpayers from being pushed into higher brackets solely due to inflationary changes.

Taxpayers can reduce their taxable income through various deductions. Minnesota offers a standard deduction, which for 2024 is $14,575 for single filers and married individuals filing separately, $21,900 for heads of household, and $29,150 for married couples filing jointly. This standard deduction may be increased for those who are blind or aged 65 or older. Alternatively, taxpayers may itemize deductions, and generally, all federal itemized deductions, except for state and local income taxes, can be claimed on Minnesota returns.

Tax credits can further reduce an individual’s tax liability or result in a refund, even if no tax is owed. The Working Family Credit, similar to the federal Earned Income Tax Credit, is a refundable credit designed for working individuals below certain income levels. The Child and Dependent Care Credit is another refundable credit that helps offset care expenses for qualifying individuals, with income thresholds for eligibility. Furthermore, a Child Tax Credit is available for 2024, with no limit on the number of children claimed, and is also subject to income phase-outs.

Minnesota Sales Tax Explained

Minnesota levies a statewide general sales tax on the retail sale of most goods and certain services. The state’s general sales tax rate is 6.875%. This rate includes a 0.375% portion dedicated to funding outdoor heritage, clean water, parks and trails, and historical and cultural heritage. While many goods are subject to sales tax, several common exemptions exist to reduce the burden on consumers.

Notable exemptions from Minnesota sales tax include most food and beverages for home consumption, as well as most clothing and prescription drugs. Motor vehicles and cigarettes are also generally exempt from the standard sales tax, as they are subject to separate specific taxes. Beyond the statewide rate, local sales taxes can be imposed by cities or counties, adding to the total sales tax rate in specific areas. These local taxes apply to transactions that are subject to the state sales tax, leading to combined rates that can vary across different jurisdictions.

Minnesota also has a complementary “use tax” that applies when sales tax was not collected on a taxable purchase used or stored within the state. This often occurs with online or out-of-state purchases from sellers who are not required to collect Minnesota sales tax. The use tax rate is generally the same as the state sales tax rate, currently 6.875%.

Property Taxes in Minnesota

Property taxes in Minnesota are primarily administered and collected by local government entities, including counties, cities, and school districts, rather than directly by the state. However, the framework and rules governing property assessment and taxation are established by state law. The amount of property tax owed is determined by the property’s estimated market value and its classification. Assessors determine the market value and classify properties based on their use, such as residential homestead, commercial, or agricultural.

Different property classifications have varying class rates, which are percentages of the market value used to calculate the property’s tax capacity. These class rates are set by the state legislature and are uniform statewide within each classification. Local levies and voter-approved bond referendums further contribute to the overall property tax bill. The combination of market value, classification, and local levies determines the final property tax amount.

To provide relief to homeowners, Minnesota offers a property tax refund program, which can reduce the net amount paid. This program provides a refund based on household income and the amount of property taxes paid on the primary residence. There is also a special property tax refund for homeowners whose net property tax increased significantly, which is not income-based. Starting in 2024, renters who qualify for a property tax refund will claim a new Renter’s Credit directly on their Minnesota individual income tax return.

Other State-Level Taxes

Beyond income, sales, and property taxes, Minnesota collects revenue through several other state-level taxes. The gasoline tax is imposed on motor fuels sold within the state. As of January 1, 2025, the gasoline tax rate is 31.8 cents per gallon.

Vehicle registration taxes, commonly known as license tab fees, are also collected annually when vehicle owners renew their registrations. These fees vary based on factors such as the vehicle’s age and value. Additionally, Minnesota imposes “sin taxes” on certain goods, including tobacco and alcoholic beverages. For cigarettes, an excise tax is imposed along with an in-lieu sales tax; other tobacco products are also taxed. Alcoholic beverages are subject to excise taxes that vary by type (e.g., beer, wine, liquor), in addition to the standard sales tax.

Minnesota also imposes an estate tax, which applies to the estates of deceased individuals. For 2024 and 2025, the state’s estate tax exemption is $3 million per person. Estates valued above this threshold are subject to rates ranging from 13% to 16%. Unlike federal estate tax rules, Minnesota’s estate tax exemption is not portable between spouses, which can necessitate specific estate planning for married couples.

Previous

How You Can Borrow Money From Yourself

Back to Taxation and Regulatory Compliance
Next

How to Reduce Tax for High Income Earners