Income Tax Comparison Study

Key Minnesota-related findings:

• Minnesota seniors paid between 30% and 100% more in income taxes than the national average depending on filer type and income level. Minnesota senior income tax burdens were highest in the nation for 5 of the 16 senior filer profiles studied and ranked 2nd or 3rd in 7 others (see accompanying table). Minnesota is one of the few states that provide no special exemptions for Social Security or pension income, subjecting Minnesota’s senior citizens to a larger income tax base than most states.

• Non-senior Minnesotans commonly pay between 4%-23% more in income taxes than the national average.

• Minnesota income tax rankings remained the same or declined from 2006 for the majority of single, married, and head of household filers.

• Based on actual tax burdens, Minnesota has one of the nation’s most progressive state income tax structures:
  • Income tax rankings for single filers rise from 39th at $10,000 of gross income to 9th at $250,000 of gross income.
  • Rankings for married filers rise from 37th at $10,000 of gross income to 10th at $1 million of gross income (bottoming out at 41st for filers with $35,000 of gross income).
  • Rankings for head of household filers rise from 38th at $10,000 of gross income to 12th at $250,000 of gross income.
  • Married filers with incomes of $1,000,000 and single filers with incomes of $50,000 and of $150,000 and higher continue to rank in the top ten nationally.
  • The difference in effective income tax rates between married joint filers at $35,000 of income and those above $150,000 of income places Minnesota 2nd nationally in income tax progressivity.

• Few states provide more favorable income tax treatment for lower earning households. Minnesota ranks near the bottom (from 37th to 40th out of 42) for married and head of household filers earning $20,000 or less. At the $35,000 gross income level, Minnesota married filers receive a $269 net tax credit, a tax burden which ranks 41st, ahead of only New York.

• Minnesota’s Working Family Credit – the state version of the federal Earned Income Tax Credit – has a significant effect on structural progressivity and state rankings. At the very low income levels, the tax for married and head of household filers is negative, delivering a credit ranging from $606 to $1,403 for incomes of $10,000 - $20,000 compared to the U.S. average – a credit of $266 to a tax liability of $123 over that same income range. Expanded Working Family Credit eligibility thresholds primarily caused the 5 position drop in Minnesota’s rank for married-joint filers at the $35,000 income level since 2006.