Minnesota State Taxes: What You’ll Pay in 2025

Since 2022, financial institutions have been required to withhold Minnesota income tax on pension distributions. You may ask a pension administrator not to withhold the tax, but if you do, you may have to pay estimated tax.

Minnesota residents can also expect to pay tax on income from annuities and money drawn from IRAs and 401(k)s. Roth IRA distributions are nontaxable.

The state does not tax military retirement pay or retirement benefits issued through the U.S. Railroad Retirement Board.

Find more information about pension and retirement taxes, exemptions and deductions on the Minnesota Department of Revenue website.

AARP’s Retirement Calculator can help you determine if you are saving enough to retire when — and how — you want.

What about investment income? 

Capital gains from investments are treated as ordinary personal income and taxed at the same rates as other income in Minnesota.

This includes long-term capital gains (profits from selling an asset you have owned for more than one year) and short-term capital gains (profits from selling an asset you have owned for one year or less.)

With capital gains from taxpayer home sales, Minnesota follows the same rules as the federal government, allowing an individual taxpayer to exclude up to $250,000 of gain on the sale of a home, or $500,000 for married couples filing a joint return.

Starting in tax year 2024, an additional 1 percent tax on net investment income over $1 million goes into effect. This can include net investment income from various sources such as interest, dividends, capital gains, rentals and royalties. The new tax will impact individuals, estates and trusts. The 1 percent will be in addition to the current 9.85 percent, for a total of 10.85 percent starting with the 2024 tax year.

Does Minnesota tax Social Security benefits?

Yes. Minnesota residents may owe both state and federal taxes on their Social Security benefits, depending on the amount they receive.

You may pay federal taxes on a portion of your Social Security benefits, depending on your "provisional income." In most cases, provisional income is equal to the combined total of half your Social Security benefits, your adjusted gross income (not including any Social Security benefits) and any tax-exempt interest for the year.

Up to 50 percent of your benefits will be taxed if your provisional income is $25,001 to $34,000--or if you file jointly and your provisional income is $32,001 to $44,000.

Up to 85 percent of your benefits will be taxed if your provisional income is more than $34,000 individually or more than $44,000 as a couple.

As for state taxes, in May 2023, Minnesota passed legislation that allowed more retirees to keep their Social Security income in 2024. Starting with the 2023 tax year, people with taxable income up to $78,000, or $100,000 for a couple, are exempt from paying state taxes on their benefits. If you receive more than those amounts, you may qualify for a partial tax break.

See the Minnesota Department of Revenue’s website for details and more information.

AARP's Social Security Calculator can assist you in determining when to claim and how to maximize your Social Security benefits.

How is property taxed in Minnesota?

Property tax in Minnesota is a local tax based on the value of your home, which is assessed by your county and varies depending on where you live.

The average property tax rate in Minnesota was 1.04 percent of a home’s assessed value in 2023, according to the Tax Foundation. The median property tax paid ranged from $1,070 in Traverse County to $4,380 in Carver County.

The Minnesota Department of Revenue has information on how residents may qualify for a property tax refund, which is designed to provide tax relief depending on your income and property taxes.

Minnesota also offers a Homestead Credit Refund, which can provide tax relief to homeowners who qualify.

What about sales and other taxes?

• Sales tax: The state levies a 6.875 percent sales tax, and local sales tax rates are as high as 3.0 percent. The average combined state and local sales tax rate is at 8.12 percent, according to January 2025 Tax Foundation data The Minnesota Department of Revenue has a map showing sales tax rates statewide. The sales and use tax applies to most retail sales of goods, plus some services in the state. 

• Groceries: Many groceries are tax-exempt, but you will pay sales taxes on certain food items such as candy and soda. 

• Gas tax: The gasoline tax is 31.8 cents a gallon in 2025, up about 3 cents from 2024. This amount is included in the price at the pump.

• Vehicle tax: A motor vehicle sales tax of 6.875 percent applies to most vehicle sales or transfers. This includes sales by dealerships, leasing companies, private individuals and businesses. A local vehicle excise tax may apply in some counties and cities. 

• Alcohol: Beer, wine and liquor sold by a business with a liquor license are subject to the 6.875 percent state general rate sales tax, a 2.5 percent liquor gross receipts tax and applicable local taxes. That tax may be passed on to the consumer. State beer excise tax rates for 2024 for Minnesota were at 47 cents per gallon, according to the Tax Foundation. 

• Hotels: Short-term lodging is taxable, and guests may have to pay taxes levied by municipalities.

• Lottery: If you win the lottery, your winnings are subject to both federal and state income taxes. Minnesota taxes all of its residents’ gambling winnings, including winnings in the state, from lottery winnings around the United States and other countries, and internet gambling. Residents must report these winnings on their Minnesota tax returns. 

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

Minnesota has an estate tax on decedents’ estates. The executor or representative of the estate must file and pay the estate tax. The Minnesota Department of Revenue has an estate tax calculator on its website.

On the federal level, estate tax can kick in for high-net-worth estates.

Minnesota does not have an inheritance tax. Beneficiaries typically don’t have to include inheritance on their income tax return. An exception is if you inherited an IRA or annuity which included the deceased person’s pretax dollars. In that situation, you will have to pay income tax.

Are there any tax breaks for older Minnesota residents?

Yes, the state has multiple programs to help older residents save.

If you are 65 or older, or have a permanent and total disability, you may qualify for a subtraction that would lower your taxable income. You also may qualify for the state’s Social Security Benefit Subtraction or the Railroad Retirement Board Benefits Subtraction.

If you live in the state for only part of the year, you can seek part-year resident status.

Minnesota offers a Property Tax Deferral for Senior Citizens program. This may allow you to defer a portion of the property taxes you owe, depending on factors such as your age, income and how long you have owned your home.

Through the Homestead Credit Refund or Renter’s Property Tax Refund programs, you may be eligible for a refund based on your household income and the property taxes or rent you paid on your primary residence. Beginning in the tax year 2024, renters no longer file a Property Tax Refund return and instead receive a credit on their Minnesota income tax return.

For more information, visit the Minnesota Department of Revenue’s website, which outlines several programs geared toward helping seniors save on their taxes.

Are military benefits taxed in Minnesota?

Yes, though Minnesota offers credits and tax relief for military service members, including the Military Pay Subtraction program and the Military Pension Subtraction program.

If you are a military veteran, you may qualify for a credit of up to $750 for your service, depending on length of service and adjusted gross income.

If you are currently serving, you may receive an automatic extension if you cannot file or pay your Minnesota income taxes by the due date. Your duty status and where you are stationed will determine if you qualify.

For more information, visit the Minnesota Department of Revenue’s website’s section for military service members.

What is the deadline for filing Minnesota taxes in 2024?

Minnesota residents must file their 2024 state income tax return by April 15, 2025. The Minnesota Department of Revenue must receive your return electronically or have it delivered or postmarked by that date. If you owe tax, you must pay it by April 15, even if you file your return later, to avoid penalties and interest.

The deadline for filing federal income tax returns is also April 15, 2025, according to the IRS.

For help estimating your annual income taxes, use AARP’s Tax Calculator.

Editor's note: This article was originally published on March 5, 2024. It has been updated to reflect new information.

Michelle Tuccitto Sullo is a states writer and editor for AARP. She previously served as managing editor of the Hartford Business Journal in Connecticut and has worked for the New Haven Register, the Connecticut Law Tribune and New Haven Biz.

Jaclyn Greenberg, a former tax accountant and CPA, has written for The New York Times, CNN, Wired, Success Magazine among others.

Also of Interest:

• States with Highest and Lowest Sales Tax Rates
• How to Get Free Help With Your Taxes
• 2025 Federal Income Tax Brackets