Tax burden for Minnesota retired veterans

Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn't necessarily ensure a low total tax burden. Following are the taxes you can expect to pay if you retire in Minnesota:

Sales Taxes

State Sales Tax: 6.875 percent (food, clothing, prescription and non-prescription drugs exempt); Liquor and beer have a tax at 9.375 percent. The sales tax rate does not apply to motor vehicles that are subject to the state excise tax on motor vehicles. A few cities and counties also add a sales tax which can be as high as 9.0 percent.

Gasoline Tax: 47.0 cents/gallon (Includes all taxes)

Diesel Fuel Tax: 53.0 cents/gallon (Includes all taxes)

Cigarette Tax: $3.00/pack of 20

Personal Income Taxes

Tax Rate Range: Low - 5.35 percent; High - 9.85 percent

Income Brackets: Four. Lowest - $25,180; Highest - $155,650

Personal Exemptions: Single - $4,000; Married - $8,000; Dependents - $4,000

Standard Deduction: Single - $6,300; Married filing jointly - $12,600. Minnesota allows personal exemption or standard deductions as provided in the Internal Revenue Code.

Medical/Dental Deduction: Federal amount

Federal Income Tax Deduction: None

Retirement Income Taxes: Social Security income is taxed by Minnesota to the same extent it is on your federal return. A married couple that receives the average Social Security benefit of $22,800 and has total income from all sources of less than $43,400 is not subject to tax on any Social Security benefits, while a couple with average benefits and total income over $71,141 must include 85 percent of the Social Security, or $19,380, in taxable income. If your only income is Social Security, you would not be required to file an income tax return. Pensions, including federal pensions, received while a Minnesota resident are taxable by Minnesota regardless of where your pension was earned. Railroad retirement benefits paid to you by the Railroad Retirement Board are not taxed by Minnesota. If these benefits are included in your federal taxable income, you may subtract them from your taxable income. Taxpayers 65 and older may subtract some income if federal adjusted gross income is under certain limits.

Retired Military Pay

As of 12/31/2015 Minnesota does not tax military retired pay.

Military Disability Retired Pay

Retirees who entered the military before Sept. 24, 1975, and members receiving disability retirements based on combat injuries or who could receive disability payments from the VA are covered by laws giving disability broad exemption from federal income tax. Most military retired pay based on service-related disabilities also is free from federal income tax, but there is no guarantee of total protection.

VA Disability Dependency and Indemnity Compensation

VA benefits are not taxable because they generally are for disabilities and are not subject to federal or state taxes.

Military SBP/SSBP/RCSBP/RSFPP

Generally subject to state taxes for those states with income tax. Check with state department of revenue office.

Property Taxes

There is a Senior Citizen Property Tax Deferral Program that allows people 65 years of age or older, whose household incomes are $60,000 or less, to defer a portion of their property tax on their home. This deferral program has two primary advantages for senior citizens. It limits the maximum amount of property tax you pay to three percent of your total household income, and it provides predictability. The amount of tax you pay will not change for as long as you participate in this program. It is not a tax forgiveness program. It is a low interest loan from the state. The deferred tax is paid by the state to your county. Interest will be charged on this loan. The interest rate will be adjusted annually, but will never exceed five percent. A lien will attach to your property.

Minnesota has two property tax refund programs for homeowners: the regular property tax refund, and the special property tax refund. You may be eligible for one or both, depending on your income and the size of your property tax bill.

For details refer to www.revenue.state.mn.us/Pages/default.aspx ,

Inheritance and Estate Taxes

Minnesota has an estate tax. The estate tax is a tax on all of the assets of a decedent before they are distributed to beneficiaries. If the estate meets the filing requirements, the estate pays this tax to the IRS and/or the state in which the decedent lived (prorated to any other states where the decedent had property). Many states have a threshold different from the federal level.

Minnesota does not have an inheritance tax. An inheritance tax is a tax on the beneficiaries of an estate (a tax on what you inherit). If you are a beneficiary, you generally do not have to include inheritance on your income tax return. However, you may have to pay income tax if you inherit an IRA/annuity, etc., which includes the decedent's pre-tax dollars. You should be notified by the estate if this is the case. The income tax is owed to the state in which the beneficiary lives (not the state where the decedent lived.).

[ www.retirementliving.com/taxes-kansas-new-mexico#Minnesota Nov. 2016]

As always please see your local County Veterans Service Officer if you have any questions. You can contact your local VSO at (218) 631-7617 or by email at david.anderson@co.wadena.mn.us and as always have a great week.