Yes, Minnesota has a state income tax, and it applies to most forms of income

Minnesota taxes your wages, self-employment income, investment gains, and retirement withdrawals at rates that range from 5.35% to 9.85%, depending on your income level. Unlike some states that tax only certain types of income, Minnesota's system is broad — it reaches most money you earn or receive, with limited exceptions.

The state uses a progressive tax structure, meaning higher earners pay a higher percentage. A single filer earning $35,000 pays a different rate than one earning $150,000. The tax brackets adjust each year for inflation, so the dollar amounts that trigger each rate change annually.

Minnesota also taxes capital gains — the profit you make when you sell an investment at a higher price than you paid. This is taxed as ordinary income, not at a separate lower rate like the federal system. If you receive dividends or interest from savings, those count as income too.

Key Takeaways

  • Minnesota's state income tax rates range from 5.35% to 9.85% depending on your total income, with rates increasing as you earn more.
  • The state taxes wages, self-employment income, capital gains, dividends, and retirement account withdrawals all as ordinary income.
  • Tax brackets adjust annually for inflation, so the income thresholds that determine your rate change each year.
  • Minnesota allows deductions for federal income tax paid and certain retirement contributions, which can lower your state taxable income.
  • You file Minnesota state taxes on Form M1, which mirrors the federal Form 1040 structure but applies state rates to your Minnesota income.

How Minnesota's tax brackets work

Minnesota divides income into four brackets for single filers and four for married filers filing jointly. Each bracket has its own rate. You do not pay the highest rate on all your income — you pay the lowest rate on your first dollars earned, then move to the next rate as you climb higher.

For example, if you are single and earn $60,000 in 2024, you do not pay 6.85% on the entire amount. Instead, you pay 5.35% on the first portion, then 6.85% on the portion above that threshold. The exact thresholds depend on the year, because Minnesota adjusts them annually.

The highest bracket, 9.85%, applies only to income above a certain threshold — roughly $250,000 for single filers in recent years, though this varies. Most Minnesota workers fall into the lower brackets. You can find the current year's brackets on the Minnesota Department of Revenue website, which publishes them each January.

What income Minnesota taxes and what it does not

Minnesota taxes W-2 wages from an employer, self-employment income from a business or freelance work, capital gains from selling stocks or property, dividends and interest, rental income, and retirement account withdrawals like distributions from an IRA or 401(k). If you receive income, Minnesota almost certainly taxes it.

The main exceptions are Social Security benefits (which Minnesota does not tax at all), certain military pay for active-duty service members, and income earned outside Minnesota if you are not a resident. If you work in another state and live in Minnesota, you may owe tax to both states, though Minnesota offers a credit to prevent double taxation.

Gifts and inheritances are not taxed as income. Proceeds from selling your primary home are not taxed (though capital gains on investment property are). Certain retirement contributions, like traditional 401(k) deferrals, reduce your federal taxable income but may not reduce your Minnesota state income in the same way — the rules differ.

Deductions that lower your Minnesota taxable income

Minnesota allows you to deduct federal income tax paid in the current year, which is unusual among states and can significantly reduce what you owe. If you paid $8,000 in federal income tax, you can deduct that $8,000 from your Minnesota income before calculating state tax.

You can also deduct contributions to traditional IRAs and self-employed health insurance premiums if you are self-employed. Minnesota allows a standard deduction (similar to the federal standard deduction) or itemized deductions, whichever is larger. The standard deduction amount varies by filing status and age and changes each year.

Minnesota does not allow a deduction for state and local taxes paid, unlike the federal system. This means you cannot reduce your Minnesota income by the amount you paid in property tax or sales tax.

How to file Minnesota state income tax

You file Minnesota state taxes using Form M1, the Minnesota Individual Income Tax Return. The form mirrors the federal Form 1040 — it asks for your income, deductions, and credits, then calculates the tax owed. You file it with the Minnesota Department of Revenue, either by mail or electronically through approved software.

If you use tax software to file your federal return, most programs will also prepare your Minnesota return. You can file both at the same time. The important date is the same as the federal important date: April 15 of the following year, or the next business day if April 15 falls on a weekend.

If you owe Minnesota tax, you pay it with your return. If you overpaid through withholding (money your employer deducted from your paychecks), you receive a refund. Minnesota processes refunds through direct deposit if you provide banking information, or by check if you do not.

How your employer withholds Minnesota tax

When you start a job in Minnesota, your employer asks you to complete a W-4 form (federal) and an MN W-4 form (state). These forms tell your employer how much to deduct from each paycheck for taxes. The more dependents or deductions you claim, the less your employer withholds.

Your employer sends the withheld money to the Minnesota Department of Revenue on your behalf. At the end of the year, your employer reports what they withheld on your W-2 form. When you file your return, you compare what was withheld to what you actually owe. If too much was withheld, you get a refund. If too little was withheld, you owe the difference.

If you are self-employed, you do not have an employer to withhold for you. Instead, you may need to make estimated tax payments to Minnesota four times a year (quarterly). These are payments you make directly to the state based on your expected income and tax liability for the year.

Minnesota tax credits that reduce what you owe

Minnesota offers several tax credits that directly reduce the amount of tax you owe, dollar for dollar. A credit is different from a deduction — a deduction reduces your income, while a credit reduces your tax bill itself.

Common credits include the Earned Income Credit (a state version of the federal EITC for lower-income workers), the Child and Dependent Care Credit, and the Education Credit for college expenses. Some credits are refundable, meaning if the credit is larger than your tax bill, you receive the excess as a refund. Others are nonrefundable, meaning they can reduce your tax to zero but not below.

You claim credits on your Form M1 or on schedules attached to it. The Minnesota Department of Revenue website lists all available credits and the income limits for each. Credits change periodically, so it is worth checking each year to see if you newly may have access to for one.

Frequently Asked Questions

Does Minnesota tax retirement income differently?

No. Withdrawals from IRAs, 401(k)s, and pensions are taxed as ordinary income at your regular rate. Social Security is the only major retirement income Minnesota does not tax. Military pensions for service members have special rules — contact the Minnesota Department of Revenue for details on your situation.

What if I moved to Minnesota partway through the year?

You owe Minnesota tax only on income earned while you were a resident. If you moved in July, you report income from July onward to Minnesota and income from January through June to your previous state. You may need to file part-year resident returns in both states.

Do I have to file if I did not earn much income?

Minnesota requires you to file if your income exceeds the standard deduction for your filing status. If you earned less, you may still want to file to claim a refund of withheld taxes or to claim the Earned Income Credit. Check the Minnesota Department of Revenue website for the current year's threshold.

Can I deduct property tax or sales tax from my Minnesota income?

No. Minnesota does not allow a deduction for state and local taxes paid. You can deduct federal income tax paid, but not property tax, sales tax, or state income tax itself.

What happens if I owe Minnesota tax but cannot pay it all at once?

The Minnesota Department of Revenue offers payment plans for unpaid tax. You can request a plan by contacting the department directly. Interest and penalties accrue on unpaid amounts, so paying as soon as possible reduces what you ultimately owe.