Minnesota Tax Guide 2026

Income tax brackets

2026 single brackets (Minn. Stat. §290.06, estimated with 2026 inflation): • 5.35% — first ~$32,570 • 6.80% — to $107,000 • 7.85% — to $200,000 • 9.85% — over $200,000 MFJ thresholds approximately the same — Minnesota has limited MFJ widening at the top, so two-earner couples can hit the top bracket on combined income just over ~$300k. Minnesota DOES conform to federal QBI §199A (subtraction allowed on M1NC) — among a minority of states that do. Capital gains taxed as ordinary income (no preferential rate). Long-term/short-term distinction relevant only for federal computation. Most Social Security benefits exempt as of 2023 (HF 1938 expanded the SS subtraction).

Minnesota Net Investment Income Tax (1%) — NEW

Effective for tax years beginning after December 31, 2023 (Minn. Stat. §290.033, enacted by 2023 omnibus tax bill HF 1938): Additional 1% tax on net investment income (NII) above $1,000,000 (single, MFJ, HoH — same threshold). Definition of NII largely mirrors federal §1411 NIIT: interest, dividends, capital gains, rental income, royalties, passive business income. Active business income excluded. For a Minnesota resident with $2,500,000 of long-term capital gains in 2026: Regular MN income tax on $2.5M at top 9.85% (less applicable deductions): ~$245k PLUS 1% MN NIIT on amount over $1M: ($2.5M − $1M) × 1% = $15,000 PLUS federal NIIT (§1411) 3.8% on full $2.5M: ~$95,000 Combined federal NIIT + MN NIIT: ~$110k of pure investment-income surtax (above ordinary federal and MN tax). This is a meaningful new burden for MN-resident retirees and post-exit founders living off investment income.

Sales tax

State rate 6.875%. Local jurisdictions add 0% to 2% — Minneapolis combined ~8.03% (state 6.875% + city 0.5% + Hennepin 0.15% transit + 0.5% transit = 8.025%; plus a 0.5% in 2024 for housing transit), Saint Paul ~8.875% (with 1% city), Duluth ~8.875%. Minnesota has unusually broad exemptions: clothing fully exempt (Minn. Stat. §297A.67 — Minnesota is one of only a few states with comprehensive clothing exemption), groceries exempt, prescription drugs exempt. Additional sales taxes layered in Twin Cities: Metropolitan Area Sales and Use Tax (0.25% — housing), Metropolitan Council Transportation Sales and Use Tax (0.5% — Twin Cities), Minneapolis Lodging (3% on hotels), etc. Economic nexus (post-Wayfair, Minn. Stat. §297A.66(4a)): $100,000 OR 200 transactions.

Estate tax

Minn. Stat. §291.03: Minnesota estate tax with $3,000,000 exemption (frozen — not inflation-indexed; original 2014 level). Rates graduated 13%–16%. MN estate tax is DECOUPLED from federal — Minnesota uses its own exemption and rate schedule. A Minnesota resident dying in 2026 with a $5M estate owes: Federal estate tax: $0 (federal exemption $15M permanent under OBBBA). MN estate tax: ~$390,000 on the $2M over MN's $3M exemption. Qualified Small Business Property and Farm Property exclusion (Minn. Stat. §291.03(8)(b)): additional $5M exclusion if the property meets the qualified-business test (held by decedent 3+ years, family operating, etc.). Combined with the $3M base exemption: up to $8M total potential exclusion. Gifts within 3 years of death added back to gross MN estate (Minn. Stat. §291.016). No Minnesota inheritance tax. No state-level gift tax.

PTET (Pass-Through Entity Tax)

Minnesota PTET (Minn. Stat. §289A.08(7a), enacted 2021 retroactive to 2021 tax year): S-corps and partnerships can elect to pay MN tax at the top individual rate (9.85%) at the entity level. Owners receive a REFUNDABLE MN tax credit equal to distributive share. Election mechanics: made on Form M3 (partnership) or Form M8 (S-corp) by the original due date. Annual; can be made retroactively via amended return for prior open years. Key nuance: PTET does NOT cover the new 1% NIIT — that remains at the individual level. So a Minneapolis investment-heavy partner pays state tax via PTET at entity level on K-1 income, but the 1% NIIT layer on his/her personal investment income still applies on Form M1. Federal SALT benefit: 37% × MN-equivalent tax paid via PTET. For a $1M K-1 partner: PTET $98,500 × 37% = $36,445 federal tax savings.

Property tax

Statewide average effective ~1.05% — moderate. Hennepin County (Minneapolis) ~1.27%, Ramsey (St. Paul) ~1.42%, Dakota ~1.05%, Anoka ~1.08%, St. Louis (Duluth) ~1.18%. Minnesota uses a classification system: residential homestead is taxed at lower 'class rate' than commercial. Homestead Market Value Exclusion (Minn. Stat. §273.13): reduces taxable market value by up to $30,400 for homes valued under $413k; phases out above. Property Tax Refund (PTR, Minn. Stat. §290A): refundable credit for owner-occupants based on income and tax bill (separate filing on Form M1PR). Not subject to a 1%-style constitutional cap; Truth in Taxation law (Minn. Stat. §275.065) requires notice of proposed levies and public hearings.

Self-employed considerations

LLC formation: $135 online ($155 paper) via MN Secretary of State. Annual Renewal: $25 (required to keep entity active). Minnesota Paid Family and Medical Leave (Minn. Stat. ch. 268B) — contributions begin January 1, 2026 (delayed from 2024); benefits begin January 1, 2026. Combined rate 0.7% (0.4% employer + 0.3% employee) on wages up to Social Security base ($184,500 in 2026). Self-employed may opt in. Unemployment: 0.5%–8.9% on first $43,000 wage base. Minnesota is a high-tax state for high-income earners — top combined federal+state+NIIT marginal can reach 50%+ for residents with investment income over $1M. For middle-income self-employed (e.g., $100k–$200k), MN is mid-pack: 7.85% marginal, PFML 0.3%, no city income tax.

Worked example: Linnea Andersen, Minneapolis-based design studio owner (S-corp, single, 2026)

Linnea's S-corp generated $325,000 net profit. She paid herself $175,000 W-2 + $150,000 distribution. She also realized $1,400,000 LTCG selling Apple stock held for 8 years.

Federal: §1202 inapplicable (not QSBS). LTCG taxed at 20% bracket + 3.8% federal NIIT. Minnesota: S-corp pass-through: $325,000 (W-2 + distribution sums to her total profit) LTCG: $1,400,000 Federal AGI feeding MN: ~$1,725,000 Less standard deduction $14,575: $1,710,425 Apply MN brackets (9.85% top): ~$166,200 MN regular tax Minnesota NIIT (1% on NII over $1M): Net Investment Income: $1,400,000 (the LTCG) Less $1,000,000 threshold: $400,000 MN NIIT: $400,000 × 1% = $4,000 Total MN personal: ~$170,200. PTET option for S-corp portion: Linnea's S-corp could elect PTET. The $325,000 S-corp income paid at 9.85% PTET = $32,012 at entity level (federally deductible). Federal benefit: 37% × $32,012 = $11,844. Worth electing. LTCG remains personal (not flow-through entity income), so NIIT layer cannot be PTET-covered. Property tax estimate (Linnea's $625k Minneapolis home, ~1.27% effective): ~$7,940/yr.

Statute references

• Personal income tax brackets — Minn. Stat. §290.06
• Minnesota Net Investment Income Tax (1%) — Minn. Stat. §290.033 (eff. 2024)
• Pass-Through Entity Tax (PTET) — Minn. Stat. §289A.08(7a)
• Estate tax — Minn. Stat. §291.03
• Qualified Small Business + Farm exclusion — Minn. Stat. §291.03(8)(b)
• Clothing exemption from sales tax — Minn. Stat. §297A.67
• Sales tax economic nexus — Minn. Stat. §297A.66(4a)
• Paid Family and Medical Leave — Minn. Stat. ch. 268B

Related pages

• PTET Analyzer →
• Estate Tax Calculator →
• State Tax Comparison →