BY STAFF WRITER —

Our beloved state income tax form

Love the mosquitoes and the snow but hate the taxes? If so, Minnesota may not be your place to retire.

According to a recent article in Where to Retire magazine, if taxation is your only factor in choosing a place to live, you can probably do better than Minnesota. While there are a few breaks for Minnesota retirees in the tax code, the state doesn't bend over backwards to keep or attract retirees through incentives to the extent some others do.

While your federal taxes will be the same regardless of where you live, state and local taxes can vary greatly. The difference between living in a state like Minnesota and one like Alaska or New Hampshire can be thousands of dollars a year. 

Several states, including Alaska, Florida, South Dakota, Nevada, Texas, Washington and Wyoming, have no income tax. Two others, Tennessee and New Hampshire tax only dividends and interest with exemptions. 

Taxing Social Security

About half of all states, as well as the District of Columbia, do not tax Social Security benefits, while seven more provide some exemption in the taxation of benefits. Not so for Minnesota. You'll pay Minnesota income tax on the amount of Social Security benefits that are subject to federal income tax. However, Railroad Retirement benefits are exempt from state income tax.

And how about that pension? If you retire in Minnesota, you can get a small break if your federal adjusted gross income is less than $33,700 for a single filer or $42,000 for joint filers. Other states who have income taxes provide similar exemptions, and some exempt state or federal pensions completely from taxation.

While Minnesota treats retirees similarly to other taxpayers and has an income tax, many other states are aggressively providing incentives to retain their retirees or draw them from other states. For example, Missouri is phasing in a full exemption for pensions from its income tax. Georgia is also increasing the amount of retirement income a taxpayer can exclude on income tax returns. Iowa will phase in a full exemption for Social Security by 2014. 

Property tax deferral

Minnesota does provide a Senior Citizen Property Tax Deferral program that enables seniors who have trouble keeping up with payments to defer a portion of their taxes. It is not, however, a tax reduction, but rather a low-interest loan program that provides for a lien on the property. For more information, go to the Department of Revenue Website.

Some states reach out to current residents

Even the notoriously high tax state of Massachusetts ("Taxachusetts") is trying to keep its retirees in the state with some tax breaks, exempting Social Security benefits from income taxation. And, if you have a  local, state or federal government pension, you won't pay any income tax on that. Massachusetts also offers long-time residents a $1,000 credit on their taxes if they qualify based on income. 

For a good summary of overall taxation in Minnesota and a comparison with other states, go to the Retirement Living Information Center Website.

Not just the income tax

But watch where you choose to settle down. Some cities and counties in states with no income tax, no Social Security taxation and pension tax exemptions can still pull more out of your pocket through property taxes, sales taxes, fees and other types of taxation. For example, while Alaska has no income or sales taxes — and even provides residents with rebates from oil lease revenues — the high cost of living there can be a burden for someone on a fixed income.

So, if you plan to retire in Minnesota, think "quality of life" not tax breaks. And pick up some DEET.