Yes, Minnesota has a state income tax

Minnesota charges a state income tax on wages, investment income, and other earnings. Unlike some states that have no income tax at all, Minnesota residents and anyone earning money in the state must file a state tax return if their income exceeds the filing threshold. The tax rate depends on your income level — Minnesota uses a progressive tax system with multiple brackets, meaning higher earners pay a higher percentage.

The state also taxes business income, retirement distributions, and capital gains in most cases. If you work in Minnesota but live in another state, or vice versa, you may owe taxes to both states, though Minnesota has reciprocal agreements with some neighboring states to prevent double taxation.

Key Takeaways

  • Minnesota has a state income tax with rates ranging from 5.35% to 9.85% depending on your income bracket and filing status.
  • You must file a Minnesota state return if your income exceeds the threshold set each year, which varies by age and filing status.
  • The state taxes wages, self-employment income, retirement account withdrawals, and most investment income.
  • Minnesota residents who work out of state and out-of-state residents who work in Minnesota may owe taxes to both states, though some reciprocal agreements exist.

Minnesota's tax brackets and rates

Minnesota's income tax brackets change each year because they are adjusted for inflation. For the 2024 tax year, the state has four tax brackets for single filers, ranging from 5.35% on the lowest income to 9.85% on the highest. Married couples filing jointly have different bracket thresholds, as do head-of-household filers.

The exact dollar amounts where each bracket begins shift annually, so you will need to check the Minnesota Department of Revenue website or your tax software for the current year's brackets. What matters is that you pay the lower rate only on income within that bracket — once you move to the next bracket, only the income above that threshold is taxed at the higher rate.

Minnesota also allows a standard deduction, which reduces the income you actually owe tax on. The standard deduction amount varies by age and filing status and is also adjusted yearly.

Who has to file a Minnesota state return

You must file a Minnesota state return if your income exceeds the filing threshold for your situation. The threshold depends on your age, filing status, and type of income. A single person under 65 with only wage income typically has a higher threshold than a dependent or someone with self-employment income.

Even if you do not owe state tax, you may want to file anyway — for example, if you had taxes withheld from your paycheck, filing allows you to claim a refund. The same applies if you are due a state tax credit, such as the Minnesota Working Family Household and Dependent Care Credit or the Property Tax Refund.

Types of income Minnesota taxes

Minnesota taxes most forms of income: wages from employment, self-employment income, interest and dividends, capital gains (profits from selling investments), rental income, and distributions from retirement accounts like traditional IRAs and 401(k)s. Long-term capital gains — profits from investments held more than one year — are taxed at a lower rate than ordinary income in some cases, but the rules are complex.

Social Security benefits are generally not taxed by Minnesota if they are your only income, but if you have other income above certain thresholds, a portion of your benefits may be taxable. Pension income and distributions from certain retirement accounts may also be subject to tax, depending on the account type and your age.

How withholding works in Minnesota

If you are an employee, your employer withholds Minnesota state income tax from your paycheck based on the W-4 form you complete. The amount withheld is an estimate meant to cover your annual tax liability. If too much is withheld, you get a refund when you file; if too little is withheld, you owe when you file.

Self-employed people and those with income not subject to withholding may need to make estimated tax payments to Minnesota four times a year. These payments are due in April, June, September, and January and help you avoid owing a large amount at tax time or facing penalties for underpayment.

Interstate tax situations and reciprocal agreements

If you live in Minnesota but work in another state, you generally owe income tax to the state where you earned the income. However, Minnesota has reciprocal tax agreements with Illinois, Indiana, Kentucky, Michigan, Missouri, New York, North Dakota, and Ohio. These agreements mean residents of those states who work in Minnesota do not owe Minnesota state income tax, and vice versa.

If you live in Minnesota and work in a state without a reciprocal agreement, you may owe tax to both states. Most states allow a credit for taxes paid to another state to prevent full double taxation, but the credit does not always eliminate the extra burden entirely. The rules are different for each state pair, so check with the Minnesota Department of Revenue or a tax professional if your situation involves multiple states.

Filing your Minnesota state return

Minnesota residents file state income tax returns using Form M1, the Minnesota Individual Income Tax Return. You can file on paper by mail or electronically through the Minnesota Department of Revenue website or through tax software. Electronic filing is faster and reduces errors.

The important date to file is the same as the federal important date — typically April 15 of the following year. If you cannot file by that date, you can request an extension, but extensions do not extend the time to pay any tax you owe. Interest and penalties explore to unpaid taxes after the important date, even if you have filed an extension.

Frequently Asked Questions

Does Minnesota tax retirement income differently?

Minnesota taxes most retirement account distributions as ordinary income. However, military pensions, certain federal pensions, and some other specific pension types may be partially or fully exempt. Social Security is generally not taxed unless your total income exceeds certain thresholds. Check the Minnesota Department of Revenue website or speak with a tax professional about your specific retirement income.

What if I moved to Minnesota partway through the year?

You owe Minnesota state income tax only on income earned while you were a resident. When you file, you report your income for the full year but indicate the date you became a Minnesota resident. Your tax is calculated based on the portion of the year you lived in the state and the income you earned during that time.

Can I deduct federal taxes paid from my Minnesota state taxes?

No, Minnesota does not allow a deduction for federal income taxes paid. However, you can deduct state and local property taxes and sales taxes (you choose one) up to a limit. You can also deduct mortgage interest, charitable contributions, and other itemized deductions if you itemize rather than take the standard deduction.

What happens if I do not file a Minnesota state return when I should?

The Minnesota Department of Revenue may assess penalties and interest on any unpaid tax. If you owe a refund, you cannot claim it after a certain number of years. If you missed filing in prior years, you can still file those returns — the sooner you do, the sooner any refund can be processed and the smaller the penalties may be.

Is there a way to reduce my Minnesota state income tax?

You can reduce your tax by taking advantage of deductions and credits you may have access to for, such as the Property Tax Refund, child and dependent care credits, or education-related credits. Contributing to a traditional IRA or 401(k) also reduces your taxable income. A tax professional can review your situation to identify credits and deductions you may have missed.