Minnesota State Tax: An In-Depth Look

Minnesota is known for being a high tax state, and for good reason. The state has some of the highest tax rates in the country, making it a challenging place for businesses and individuals to thrive. However, with these high tax rates come a wide range of services and benefits that are critical to the wellbeing of the state’s residents.

This article will explore the various aspects of Minnesota’s state tax system, including the different types of taxes, how they are levied, and what services and benefits they help fund. We’ll also take a look at recent changes to the state’s tax system and what those changes mean for Minnesota residents.

Types of Taxes in Minnesota

There are several different types of taxes that are levied in Minnesota, including income tax, sales tax, and property tax. Each of these taxes serves a different purpose and is levied in a different way.

Income Tax

Minnesota has a progressive income tax system, which means that the tax rate increases as income increases. The income tax is levied on both individuals and businesses, with different tax rates for each.

For individuals, the tax rate ranges from 5.35% to 9.85%, depending on income. For businesses, the tax rate ranges from 9.8% to 11.25%, depending on the type of business and income.

Minnesota also has a state alternative minimum tax (AMT), which is designed to ensure that high-income taxpayers pay a minimum level of tax. The AMT is calculated separately from the regular income tax and is levied at a rate of 6.5% for 2020.

Sales Tax

Minnesota has a sales tax of 6.875% on most goods and services. However, there are some exceptions to this rate. For example, the sales tax on liquor is 9%, and there is no sales tax on clothing items that cost less than $100.

In addition to the state sales tax, some cities and counties in Minnesota also have local sales taxes which are added on top of the state sales tax. These local sales taxes range from 0.5% to 1.5%.

Property Tax

Property taxes in Minnesota are levied at the county level and are based on the value of the property. The tax rate varies from county to county, but the statewide average is around 1.05% of the property’s value.

In addition to county property taxes, there are also special property taxes levied for specific purposes, such as school districts and regional transit authorities.

How Minnesota State Taxes are Levied

Minnesota state taxes are principally levied through a system of withholding. This means that employers withhold a portion of each employee’s income and send it directly to the state’s Department of Revenue.

For businesses, taxes are typically paid quarterly or annually, depending on the size of the business and the amount of taxes owed.

Minnesota State Taxes and Services

Minnesotans pay some of the highest state taxes in the country, but they also have access to a wide range of services and benefits that are funded by those taxes.

Education

Minnesota is known for having a strong public education system, and this is largely due to the state’s investment in education through state taxes. In fact, more than 40% of Minnesota’s general fund budget is dedicated to education.

This investment in education pays off in higher graduation rates and better academic performance. According to the Minnesota Department of Education, the state’s graduation rate in 2020 was 83.8%, which is above the national average.

Healthcare

Access to affordable healthcare is a critical issue for many Americans, and Minnesota is no exception. Through state taxes, Minnesota has been able to invest in healthcare programs that provide access to affordable healthcare for all residents.

These programs include MinnesotaCare, which provides affordable health insurance to low-income residents, and Medical Assistance, which provides healthcare coverage to low-income families and individuals.

Transportation

Minnesota is a large state with a lot of ground to cover, and state taxes play a critical role in funding the state’s transportation infrastructure. This includes everything from maintaining roads and bridges to funding public transportation projects.

In recent years, the state has invested in major transportation projects, including the extension of the Metro Green Line light rail, which runs from Minneapolis to St. Paul.

Recent Changes to Minnesota State Taxes

The Minnesota state tax system has undergone a number of changes in recent years, with both legislative and administrative changes having an impact on the system.

In 2017, the Minnesota legislature passed a tax bill that included several changes to the state’s tax system. One of the most significant changes was the reduction of the income tax rate for middle-income earners. This change was designed to provide tax relief to residents in the middle-income range and help make Minnesota a more attractive place to live and work.

Another change included in the 2017 tax bill was the expansion of the working family credit, which provides a tax credit to low-income families who work. The expansion of this credit is designed to help reduce poverty and increase economic mobility for low-income families in Minnesota.

In addition to legislative changes, the Minnesota Department of Revenue has made administrative changes to the state’s tax system in recent years. One such change was the implementation of a new electronic filing system for many tax forms, which has made it easier and more efficient for residents and businesses to file their state taxes.

Conclusion

Minnesota’s state tax system is complex and varied, with different taxes levied in different ways to fund a wide range of services and benefits. While Minnesota residents pay some of the highest taxes in the country, they also have access to high-quality education, healthcare, and transportation infrastructure that can improve their quality of life.

As with any tax system, there are pros and cons to the Minnesota state tax system. However, with continued investment in critical services and benefits, the state can continue to thrive and remain a top destination for businesses and individuals alike.

Income taxes in Minnesota are combined between state and local taxation so personal income tax rate can be as high as 10%  Like other states, there are excise taxes of liquor, beer and cigarettes, as well as vehicle taxes.  There are also property taxes that must be given consideration.  Tax returns are due on April 15.

Minnesota state sales tax – 6.875%, (food, clothing, prescription and nonprescription drugs exempt).  This is in addition to local sales taxes.  Use taxes may be applicable for purchases made out of state for use in Minnesota.

Minnesota personal income tax

There are three tax brackets:

Single:

o 5.35 percent on the first $22,770 of taxable income.

o 7.05 percent on taxable income between $23,771
and $74,780.

o 7.85 percent on taxable income of $74,781 and above.

Married:

o 5.35 percent on the first $33,280 of taxable income.

o 7.05 percent on taxable income between $33,281 and $132,220.

o 7.85 percent on taxable income of $132,221 and above.

Minnesota state excise taxes

Taxes assessed on vehicles, alcohol, tobacco, gasoline and are in addition to federal excise taxes.

– $.48  per package of 20 cigarettes

– .04 per liter of cider, up to 7% alcohol

– $2.40 per 31 gallon barrel of beer under 3.2% alcohol, $4.60 for over 3.2%, exemption for small brewers under 100,000 for taxes on first 25,000 barrels.

– $.08 per liter of wine, 4% alcohol or less, up to $.93 for wine greater than 24% alcohol by volume.

– $.20 for all highway fuels, slightly lower for ethanol and methanol blends

– $.15 for liquefied petroleum gas

Minnesota marijuana tax

– $3.50 per gram

This tax can be used to charge dealers for tax evasion, in addition to other charges for selling illegal drugs.  Purchasers of these stamps are not under investigation and some may simply collect these stamps.

Minnesota inheritance tax

There are no longer taxes on inheritance and estates in Minnesota.  Only federal laws are in effect.

Minnesota payroll taxes

State Disability Insurance – none

State Unemployment Insurance – .07014% to 11.05032%, wage base is $27,000.  Employer contribution is 1.910%.  High experience rating industry employer’s contribution is 8%.  Workplace enhancement fee assessment of .12%.

State minimum wage follows federal law

Minnesota state property tax

Property tax is local and depends on the city or county in Minnesota.  Tax rates depend on property assessment and use of the property.  The classification of the property will determine the percentage taxation by the county.

Exemptions

There are personal exemptions from taxation that total $3,650 for individuals and $7,300 for couples.  Dependents are subject to a $3,650 exemption.

Many pensions, including social security, can be taxed by Minnesota.  This excludes railroad retirement pensions.  Senior citizens can claim some exemptions from property and other taxes if their income falls below a $60,000 threshold.

There are two property tax refund programs for homeowners, each depending on income and property tax assessed.

Military retirement pay is not taxed.  This includes benefits passed to the surviving spouse.  Military disability and veteran’s pensions are almost always exempt from federal and Minnesota state taxation.