Introduction
You should know that Minnesota has a progressive income tax system with tax rates ranging from 5.35% to 9.85% for 2023. If you’re married, filing jointly with your spouse, the standard deduction has increased to $27,650 and the dependent exemption is $4,800.
When preparing your Minnesota taxes this year, you’ll notice the income tax brackets were also adjusted for inflation. For example, the top tax rate of 9.85% only applies to single taxpayers earning over $183,340.
If you itemize deductions on your federal return, you may also itemize on your Minnesota return or claim the standard deduction applicable to your filing status. Also, changes were made to tax some retirement income. For instance, distributions from most retirement plans are now taxable in Minnesota. Stay current on the latest Minnesota tax changes so you can maximize your savings and properly complete your taxes.
Minnesota State Taxes: 2023 Update
1. Single Filer
2. Married Filing Jointly
3. Married Filing Separately
4. Head of Household
5. Standard Deductions
6. Sales & Use Tax Law
7. Retirement Income Tax
Recap
1. Single Filer
Minnesota utilizes a graduated income tax system with rates ranging from 5.35% to 9.85% in 2023. The state income tax is structured on a graduated scale.
Depending on your income, different tax rates apply to different portions of your earnings. As a single filer, here’s the break down for you in 2023:
You’re taxed at 5.35% on your income up to $30,070. This means if you earn anything up to this amount, that’s the rate applied to your earnings.
If your income is between $30,071 and $98,760, a 6.80% rate applies to the portion within this bracket. Anything you earn within this range is subject to this specific rate.
Moving higher, if you earn between $98,761 and $183,340, you’ll be taxed at a rate of 7.85% for this income range.
And for any income you earn that surpasses $183,340, the highest rate of 9.85% will be applied to the amount exceeding this threshold.
These brackets are essential to calculate how much of your income falls into each category and how much tax you owe accordingly.
For example, if the total income you earn in year 2023 is $200,000, here’s how it would be taxed:
- 35% on the first $30,070 of your income
- 80% on the income between $30,071 and $98,760
- 85% on the income between $98,761 and $183,340
- Finally, 9.85% would apply to the amount exceeding $183,340, which in this case, would be the portion of your income over that threshold ($200,000 minus $183,340).
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2. Married Filing Jointly
If you’re married and you’re filing jointly with your spouse in Minnesota, for the tax year 2023, the income tax brackets follow a progressive structure. Here’s how it works for you:
You’ll be taxed at a rate of 5.35% on your combined income up to $43,950. This means any total income below this threshold falls within this bracket.
The next bracket applies a rate of 6.80% to income between $43,951 and $174,610. So, if your joint income falls within this range, this rate applies to that specific portion.
Moving up, for incomes between $174,611 and $304,970, a rate of 7.85% is applicable. Any combined income within this bracket is subject to this particular rate. Finally, any income exceeding $304,970 is taxed at the highest rate of 9.85%.
3. Married Filing Separately
For married couples filing separately in Minnesota for the tax year 2023, the income tax brackets operate on a graduated system. Here’s what you need to know:
You’ll be taxed at a rate of 5.35% on your income up to $21,975. This applies to any earnings within this specific bracket.
For incomes between $21,976 and $87,305, a rate of 6.80% is applicable. So, any earnings you have within this range are subject to this particular rate.
Moving to higher incomes, between $87,306 and $152,485, a rate of 7.85% applies. This means your income within this bracket is taxed at this specific rate. Lastly, if your income exceeds $152,485, the excess is taxed at the highest rate of 9.85%.
4. Head of Household
Before you file your taxes in Minnesota for the 2023 tax year, under the Head of Household status, take note of the updated income tax brackets:
You’re taxed at 5.35% on your income up to $37,010. So, any earnings within this bracket is subject to this specific rate.
For incomes between $37,011 and $148,730, a rate of 6.80% applies. This means any income you earn within this income range is taxed at this particular rate.
Moving up, between $148,731 and $243,720, a rate of 7.85% is applied. However, if your income is above $243,720, you’ll be taxed at the highest rate of 9.85%.
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5. Standard Deductions
The standard deductions in Minnesota State tax structure serves as a fixed reduction in your taxable income, allowing you to lower your tax bill without itemizing specific expenses.
Now, onto an important point: you have the choice in Minnesota to either claim this standard deduction or itemize your deductions on your state income tax return. It’s essential you note that even if you previously itemized deductions on your federal return, you can still opt for the Minnesota standard deduction.
Be aware that the standard deduction detail is based on different filing statuses for the tax year 2023. If you’re Single or Married Filing Separately, your Minnesota standard deduction stands at $13,825.
As a Single filer, the additional amount to the standard deduction is $1,850, and if you’re Married Filing Separately, it’s $1,450. This extra amount applies if you’re visually impaired or were born before January 2, 1959, allowing you to increase your standard deduction by these specific amounts.
Now, if your filing status is Married Filing Jointly, your Minnesota standard deduction increases to $27,650. You can add $1,450 for each spouse who is blind, and the same amount applies for each spouse born before January 2, 1959.
For those filing as Head of Household, the Minnesota standard deduction is $20,800. Additionally, if you’re visually impaired or were born before January 2, 1959, you’re eligible to increase this by $1,850 each.
Noting these deductions can significantly impact your taxable income, so it’s crucial you leverage these opportunities when filing your taxes. However, a specific rule applies if you’re Married Filing Separately and your spouse chooses the standard deduction on his or her Minnesota return.
In this case, you’re also required to take the standard deduction rather than itemizing your deductions. This ensures consistency in your filing status and deductions within the state of Minnesota.
6. Sales & Use Tax Law
Minnesota’s Sales & Use Tax Law remains applicable in 2023, impacting your purchases and transactions within the state. When you buy taxable goods or services, the Sales Tax comes into play, applying to retail sales and leases. Certain items like clothing, food, and prescription drugs might be exempt.
The Use Tax, on the other hand, applies when you buy taxable items outside Minnesota but you use it within the state. Remember, this tax is your responsibility to report and pay if applicable. The Minnesota Department of Revenue website provides you with comprehensive guidance on taxable items and current exemptions.
7. Retirement Income Tax
In tax year 2023, changes to Minnesota’s retirement income taxation affect how you calculate your taxes. Previously, most retirement plan distributions weren’t subject to Minnesota income tax, while federal tax still applied.
However, a 2021 bill gradually reduces the full subtraction of your pension income over five years starting this year 2023. Now, 75% of your income from plans like 401(k)s and IRAs is taxable in Minnesota at income tax rate, with 25% still deductible.
This deductibility decreases annually, hitting 0% after 2026. Be aware that exceptions exist for certain retiree groups like military and public safety officers. Make sure you understand these changes as it helps you to accurately assess the Minnesota tax you owe on your retirement income.
Recap
For 2023 tax year in Minnesota, different rates apply to various income ranges for different filing statuses, impacting how much tax you owe based on your earnings. If you itemize deductions on your federal return, you have the choice to do so on your Minnesota return or claim the standard deduction based on your filing status.
Sales tax applies to your purchases and transactions within Minnesota, and Use Tax applies to certain items you use within the state but bought elsewhere. Lastly, most retirement plan distributions are now taxable in Minnesota, affecting your tax liabilities and requiring attention to accurately report your incomes.
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