Income tax in Minnesota

Minnesota's income tax is levied on Minnesota taxable income (MTI), which is related but not identical to federal taxable income (FTI), the income measure used in determining federal income tax liability. MTI adds some items to FTI such as bond interest from other states, and it subtracts some other items from FTI such as U.S. treasury bond interest.

The tax structure is a slightly progressive, with three rates: 5.35 percent, 7.05 percent, and 7.85 percent, each applied to different income brackets that vary by filing status and years. Married couples filing joint returns are allowed the widest brackets, followed by head of household filers (single parents), and then by unmarried single filers.

Minnesota allows taxpayers to have two kinds of tax credits. The basic "nonrefundable" credits are used only to reduce liability. These credits include marriage credit, long-term care insurance credit, and credit paid to other states. The second kinds of credits are "refundable," meaning that they are paid as refunds to taxpayers even if the credit amount is greater than their income tax liability (and thus may lead to negative income tax). These are dependent care credit, working family (earned income) credit, and K-12 education credit.

In comparison, Minnesota has a higher income tax than many other states.