An Overview of Minnesota State Taxes
Tax rates, rules, and regulations can change at both the federal and state level. You want to keep up with these developments and understand basic tax rules for two reasons. First of all, you are required by law to pay taxes and to accurately report income, earnings, and property value for tax purposes. If you do not do this, you could be subject to fines or interest charges or have your refunds garnished. In extreme cases, you may even be subject to criminal prosecution.
Secondly, and on the positive side, filing state and federal taxes could lead to benefits such as refunds or credits.
The IRS has a list of the most common tax scams. Some people may unwittingly fall victim to these scams, receive bad advice, or wittingly or unwittingly break tax rules. Tax authorities at the state and federal level seek out individuals or tax preparers who inflate deductions, hide cash assets, underreport overseas earnings, or use illegal tax shelters. You also need to be mindful of identity theft, phishing, or scams involving tax preparers. The IRS has a “Dirty Dozen” of scams about which they are especially vigilant.
In addition to filing federal taxes, Minnesota residents also need to file state taxes. Residents have to pay state income taxes. Minnesota has high-income tax rates, but it also offers various tax credits and a sales tax break on some items, such as clothing, that get taxed in most other states.
Here is what you should know about filing Minnesota state taxes so that you can follow the rules and also ensure that you get the credits and refunds due to you.
Table of Contents
Minnesota Income Tax
Minnesotans pay state income tax in addition to federal income tax. In Minnesota, the amount that you pay depends on your income tax bracket. Minnesota has four tax brackets. The higher your income, the higher your tax rate. Your tax status can also affect how much you have to pay in-state taxes.
Here are the income tax rates for Minnesota taxpayers:
|Tax rate||Married, filing jointly||Single||Head of household|
|5.35%||$0 to $37,110||$0 to $25,390||$0 to $31,260|
|7.05%||$37,111 to $147,450||$25,391 to $83,400||$31,261 to $125,600|
|7.85%||$147,451 to $261,510||$83,401 to $156,910||$125,601 to $209,210|
|9.85%||$261,511 and up||$156,911 and up||$209, 211 and up|
Income Tax Credits
Minnesota’s tax rates are relatively high. However, the state also offers a number of tax credits.
Businesses can earn tax credits in several different ways.
- Companies and investors can invest in development projects in low-income communities designated as opportunity zones. In exchange for their financial support, they get temporarily deferred capital gains taxes on their investment returns. If they hold the investment for 10 years, they may be exempt from all state capital gains taxes.
- Companies can get a 10% credit on qualifying research and development expenses up to $2 million, and 2.5% on expenses above that.
- As part of the Greater Minnesota Job Expansion Program, businesses that expand outside of urban areas and offer jobs to rural Minnesota residents can get a seven-year break from sales taxes. This break comes in the form of a refund on sales taxes.
Individuals can also earn tax credits in Minnesota.
- Minnesota’s Earned Income Tax Credit (EITC) is known as the Working Family Credit. The rate of the credit fluctuates from year to year, but it averages about 34%. There are different rates for families of different sizes, but you need dependent children to qualify for the credit.
- The Child and Dependent Care Tax Credit is for families with at least one dependent. The maximum credit is $720 for families with one dependent who have an adjusted gross income of $25,720 or less. Smaller credit amounts are available to families that have an adjusted gross income of $39,400 or less.
MN State Sales Tax
The sales tax rate in Minnesota varies depending on where you are in the state because some counties and municipalities add additional sales charges on to state taxes. Minnesota offers a sales tax calculator that you can use to figure out the sales tax in your local area.
The base sales and use tax in Minnesota is 6.875%. Sales tax is due at the time of purchase. Most retail stores and other sellers charge sales tax at the point of sale. A use tax is charged on taxable goods when sales tax did not get collected at the time of purchase.
The sales tax calculator can help with calculating the sales tax on taxable items for both retailers and those who need to pay a use tax on purchased items.
Minnesotans do not have to pay sales tax on clothing that is for general use. The sales tax exemption applies to apparel, but it does not include accessories, sporting goods, or other specialized clothing that is not for daily use.
Minnesota Property Taxes
Counties administer property taxes in Minnesota, with additional levies for school districts and other public services. Because of this arrangement, property taxes are different in various parts of the state.
In 2020, new school levies and other factors could lead to a 5.9% increase in property taxes, on average, in Minnesota. On average, the class rate for a residential home that is less than $500,000 in assessed value is 1%. Homes over $500,000 in value have a class rate of 1.25%. Agricultural properties get taxed at a slightly lower rate, while commercial properties are somewhat higher.
Homeowners Homestead Credit Refund
Minnesota’s homeowners may qualify for a homestead tax credit. You could be eligible for this tax credit if you have a Social Security number, you own your home, it is your primary residence, and you are up to date on your property tax payments.
You qualify for the homestead tax credit if you owned your home during the tax year, and your household income was under the threshold. The current income maximum is $115,020. You can also get a special refund if your property taxes increased by more than 12% compared to the previous year.
Minnesota Estate Taxes
Minnesota currently has an estate tax, but it does not have an inheritance tax. An estate tax is levied on the value of an estate after the person dies but before the inheritance goes to beneficiaries. An inheritance tax is a tax on the inheritance after it gets disbursed to each heir.
Minnesota has a state estate tax calculator. You use this information to help file Form M706, which is the state estate tax return.
Tips for Filing Taxes in Minnesota
Minnesota begins accepting income tax returns in mid-January, but the final due date is April 15, or the same due date as federal tax returns. If your income is less than $66,000 per year, you can qualify for free electronic filing.
If your employer does not withhold taxes, you may need to include tax payments in your budget over the course of the year.
If you are a Minnesota resident who meets income requirements, you need to file a tax return each year. Nonresidents and part-time residents who surpassed the income minimum also need to file. You need to file if you earned more than $12,200 in Minnesota as a single filer or $24,400 as a married couple.
Even if you do not need to file, you may wish to do so if you had income withheld from your paycheck during the year or if you wish to qualify for certain tax credits for which you are eligible.
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