Minnesota’s brackets and its 1% tax on investment income
Minnesota taxes gains as ordinary income through four brackets from 5.35% to 9.85%, the top one starting at about $203,000 for single filers in 2026. It also has its own net investment income tax: 1% of Minnesota net investment income above $1 million, enacted in 2023 and separate from the federal 3.8% NIIT.
For a seven-figure sale that means a top Minnesota marginal rate of 10.85% on the gain, before federal tax. At ordinary levels the bite is still significant: a single filer going from $60,000 to $110,000 of Minnesota taxable income pays about $3,406 more. Gains on certain farm property (class 2a) are excluded from the state investment income tax, and credits for tax paid to other states cannot reduce it.
Minnesota ordinary tax and separate annual investment-income tax
Minnesota’s 2026 income-tax schedule has four rates: 5.35%, 6.8%, 7.85% and 9.85%. Independently indexed filing-status boundaries determine the ordinary annual tax. Minnesota also has its own 1% tax on state-defined net investment income above $1 million. This state measure is not federal NIIT MAGI, and the state threshold and rate must not be confused with the federal 3.8% tax.
Prepare annual Minnesota taxable income and Minnesota net investment income separately. The NIIT definition excludes specified items, including eligible class 2a property gain and applicable U.S.-obligation interest. A sale may alter both measures by different amounts. Current M1 mechanics add NIIT into tax before eligible M1C credits, but the M1CR credit for tax paid to another state cannot reduce Minnesota NIIT.
The calculator requires independently approved regular-tax and NIIT credit allocations, with explicit confirmation that no M1CR amount offsets NIIT and no credit is used twice. It caps each approved allocation against its component. Unknown allocations keep final tax unknown. Additional taxes, residency allocation and unsupported return effects use prepared final liabilities. Indexed marginal bases are calculated from the published thresholds and rates, not described as printed agency dollar bases.
Minnesota preparation checklist
- Annual Minnesota NII and independently permitted regular / NIIT credit allocations
- M1CR cannot offset state NIIT
- No duplicated regular and NIIT credits