Minnesota State Taxes: What You’ll Pay in the 2026 Tax Season

Minnesota ranks 44th on the Tax Foundation’s 2026 State Tax Competitiveness Index. The state’s graduated income tax tops out at 9.85 percent and is among the highest in the nation. Minnesota’s state and average local sales tax rate (8.14 percent) is also higher than neighboring states, according to the Tax Foundation.

The big picture:

• Income tax: Graduated state individual income tax rates range from 5.35 percent to 9.85 percent based on income.
• Property tax: Statewide average rate of 1 percent of assessed value, according to the Tax Foundation.
• Sales tax: 6.875 percent statewide sales tax. Municipalities can impose their own sales tax, with an average local tax of 1.26 percent, which brings the average combined state and local sales taxes to 8.14 percent, according to the Tax Foundation.

How is income taxed?

Income is taxed through graduated rates based on income.

What about investment income?

Minnesota taxes capital gains as regular income per the state’s income tax brackets. The state also has a net investment income tax of 1 percent on all net investment earnings above $1 million.  

Are Social Security benefits taxed?

Minnesota taxes Social Security but offers an income tax subtraction based on means.

For tax year 2025, the following taxpayers can subtract all of their Social Security benefits included in adjusted gross income — meaning they do not have to pay any state income tax on those benefits:

• Single or head of household with an adjusted gross income of $84,490 or less.
• Married filing jointly with an AGI of $108,320 or less.
• Married filing separately with an AGI of $54,160 or less.

For taxpayers who are single, head of household or married filing jointly, the subtraction is phased out by 10 percent for each $4,000 of AGI (or fraction of $4,000) above the income thresholds. For taxpayers who are married filing separately, the subtraction is phased out by 10 percent for each $2,000 of AGI.  

For example, married taxpayers filing jointly with an adjusted gross income of $115,000 would be able to subtract 80 percent of their Social Security benefits because their AGI is two increments (or partial increments) of $4,000 above the $108,320 threshold.

More information is available here.

How is property taxed?

Minnesota had an average property tax of 1 percent of assessed value, with rates varying by county, according to the latest data from the Tax Foundation. The lowest property tax rate in the state is 0.56 percent in Cass County, while the highest is 1.19 percent in Ramsey County. The lowest median property tax paid was $1,126 in Traverse County, while the highest was $4,501 in Carver County.

What about sales and other taxes?

• Sales tax: Minnesota has a 6.875 percent statewide sales tax. Municipalities can impose their own sales tax, which brings the average combined state and local sales taxes to 8.14 percent, according to the Tax Foundation. Exemptions include clothing, groceries and prescription medications. Learn more here.  
• Gas and diesel: Starting Jan. 1, 2026, the tax for gasoline and diesel in Minnesota rose to 32.6 cents per gallon, up from 31.2 cents per gallon in 2025.  
• Vehicle tax: 6.875 percent sales tax on vehicle sales. Additionally, cities and counties can administer their own excise tax on vehicle purchases.
• Alcohol: In addition to the 6.875 percent sales tax, liquor, beer and wine have an additional 2.5 percent tax. Local municipalities can impose their own taxes on alcohol.
• Lottery: Lottery winnings are subject to the state’s income tax.

Will my heirs or estate have to pay inheritance and estate tax?

Minnesota imposes an estate tax, with an exemption for estates valued below $3 million. The estate tax has five brackets, with a bottom rate of 13 percent that applies to the amount of the taxable estate up to $7.1 million. The top rate of 16 percent applies to the amount of the taxable estate over $10.1 million. More information is available here.

Are there any tax breaks for older residents?

• Elderly exclusion: This exclusion allows low-income taxpayers who are over age 65 or disabled to exclude a certain amount of income, regardless of the source, from their taxable income. For married taxpayers filing jointly who are both over 65 or disabled, a base amount of $12,000 is excluded from taxable income. The exclusion begins to phase out at $18,000, with a maximum eligible income of $42,000. For a single taxpayer who is over 65 or disabled, the base amount is $9,600; the phaseout begins at $14,500; and the maximum eligible income is $33,700. More details are available here.  
• Property Tax Deferral for Senior Citizens: This allows some residents age 65 and older to defer a portion of the property taxes they owe. Residents will pay a property tax of 3 percent of their total household income based on their prior year income. The state pays the remainder as a loan. When a beneficiary of the deferral sells their home or voluntarily cancels the deferral, they must repay the loan plus interest. The interest rate varies but does not exceed 5 percent. More information is available here. Frequently asked questions can be found here.

Is military retirement pay taxed?

Taxpayers may subtract their military retirement pay from their taxable income.

What is the deadline for filing taxes in 2026?

The deadline to file your 2025 tax return is April 15, 2026.

 

More AARP Financial Resources

• AARP Retirement Calculator Determine if you are saving enough to retire when — and how — you want.
• AARP’s Social Security Calculator Figure out when to claim and how to maximize your Social Security benefits.
• AARP Tax Tools Explore resources to help you calculate and prepare taxes.