Taxation of Social Security Benefits and Public Pensions
Starting for tax year 2023, eligible Minnesota taxpayers will no longer pay any Minnesota income tax on Social Security benefits based on reported adjusted gross income. Recipients of certain public pension income will also qualify for an exclusion of $25,000 for married, filing jointly or $12,500 for single or head of household filers.
Key Points
Social Security benefits are sometimes subject to federal and state taxation. A dozen states will tax some of their residents’ Social Security in 2023. However, Nebraska and Missouri are eliminating their taxes for the 2024 tax year.
Will Minnesota tax Social Security in 2023?
Starting for tax year 2023, eligible Minnesota taxpayers will no longer pay any Minnesota income tax on Social Security benefits based on reported adjusted gross income.
The Minnesota Legislature
The Minnesota Legislature adjourned for the 2023 session Monday night, sending the $72 billion, two-year state budget to Gov. Tim Walz’s desk for signature. It includes direct rebate checks, tax relief for seniors on Social Security, and a new tax credit that Democrats say will make a huge dent in child poverty.
Tax Relief Debate and State Budget Projections
About 348,700 Minnesota households currently pay state taxes on Social Security benefits. With the state projecting a $17.5 billion surplus, eliminating this tax has become a key legislative issue. Lawmakers and seniors disagree on the best approach. Republicans and some Democrats want to fully exempt benefits, joining 39 other states that don’t tax Social Security. A full exemption would cost Minnesota $661 million over two years. Democrats prefer to raise the income threshold at which the tax kicks in, providing relief to lower and middle-income retirees.
Final Budget Deal
The final budget deal includes partial relief. Starting in 2023, more low and middle-income Minnesotans will pay no state tax on benefits. Those with pension incomes below $25,000 joint or $12,500 single will also get exemptions. While not a full elimination, it’s still the biggest tax cut for seniors in state history.