Minnesota LLC Taxes
In Minnesota, LLCs are taxed as pass-through entities by default. Instead of paying business taxes directly, an LLC passes its revenue onto its members, who then pay individual income tax on the earnings they receive. Minnesota LLC members must pay federal income tax at the 15.3% self-employment rate plus state income tax at a graduated rate. Minnesota collects a state sales tax of 6.875%, and most municipalities also levy a local sales tax. Here, we cover the basics of paying LLC taxes in Minnesota.
In this article, we’ll cover:
How Are Minnesota LLCs Taxed?
If you own a single-member LLC (SMLLC), your default filing status is as a sole proprietorship. However, if you own a multi-member LLC, your default filing status is as a partnership. Regardless of whether you file as an SMLLC or a multi-member LLC, you’ll pay individual income tax on the profits you receive from your LLC at the federal self-employment rate of 15.3% (12.4% for social security and 2.9% for Medicare). You’ll need to submit different forms to the IRS depending on your default status:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi-member LLC—Form 1065
As a Minnesota LLC, you can also elect to be taxed as an S-corp or a C-corp. Here’s how that will affect your taxes.
Minnesota LLCs taxed as S-corp
Filing under S-corp status can be beneficial to LLCs that meet the IRS requirements for S-corps. Like LLCs, S-corps are taxed as pass-through entities and don’t have to pay corporate income tax. However, unlike a regular LLC, the distributions that S-corps make to their members aren’t subject to federal self-employment tax (though members must still pay self-employment tax on salary).
To switch your filing status to S-corp, file Form 2553 with the IRS. Before doing so, consult a CPA to make sure S-corp tax election is right for your business. You’ll need to submit Form 1120-S to file your taxes as an S-corp.
LLCs taxed as C-corp
Some LLCs choose to be taxed as corporations and file under C-corp status. Although C-corps are subject to double taxation and must pay taxes at both the entity and shareholder level, some LLCs find advantages in C-corp election. C-corps are most likely to attract investors and are eligible for more tax deductions.
In Minnesota, C-corps must pay the state’s 9.8% corporate income tax rate on top of the 21% federal corporate tax rate. Filing as a C-corp is more complex than filing under default status, so we recommend working with a CPA to determine whether or not C-corp status will benefit your LLC. As a C-corp, you’ll use Form 1120 to file your LLC taxes.
Minnesota State Income Tax
If you’re filing as a sole proprietor or partnership, you’ll need to pay Minnesota state income tax. Minnesota’s individual income rate ranges from 5.35% to 9.85%, depending on income level and filing status. You can file with a current version of Form M1, Individual Income Tax or online using certified filing software suggested by the Department of Revenue.
|Tax Rate||Income Bracket: Single||Income Bracket: Married, Filing Separate||Income Bracket: Married, Filing Jointly|
|5.35%||$0 – 30,070||$0 – $21,975||$0 – $43,950|
|6.8%||$30,070 – $98,760||$21,975 – $87,305||$43,950 – $174,610|
|7.85%||$98,760 – $183, 340||$87,305 – $152,485||$174,610 – $304,970|
|9.85%||$183,340 or more||$152,485 or more||$304,970 or more|
Filing as a partnership, your LLC will need to file a current version of Form M3, Partnership Return to report its income to the state of Minnesota, even though there is no additional partnership tax.
An LLC filing as an S-Corp must file a recent version of Form M8, S Corporation Return to report income to the state. S-corps will also have to pay Minnesota’s 9.8% corporate tax on certain types of income, as listed on the Minnesota Department of Revenue’s S-Corporation taxes page.
LLCs filing as C-Corps must file an up-to-date version of Form M4, Corporation Franchise Return and pay Minnesota’s 9.8% Corporation Franchise Tax.
Business Entity Minimum Fees
All LLCs filing as partnerships, S-corps, or C-corps that meet a certain threshold for the total value of their property, payroll, and sales will need to pay a Minimum Fee to the state. This threshold and the associated fees, which vary by value bracket, change from year to year. For 2023, the total value threshold is $1,060,000. Minimum fee amounts for 2023 are given below:
|Total Business Entity Value||Minimum Fee|
|Less than $1,160,000||$0|
|$1,160,000 – $2,309,999||$240|
|$2,310,000 – $11,569,999||$690|
|$11,570,000 – $23,139,999||$2,310|
|$23,140,000 – $46,279,999||$4,640|
|$46,280,000 or more||$11,570|
Pass-Through Entity Tax
LLCs taxed as partnerships or S-Corps can elect to pay Pass-Through Entity (PTE) tax, as long as members who collectively own more than 50% of the entity agree to do so. PTE tax is levied at the highest individual income rate, 9.85%.
After your LLC has been taxed at the entity level, your members can claim a refundable tax credit equal to the PTE tax paid by your LLC (these credits are claimed on members’ individual returns). This can save your LLC money because you may be able to claim a higher dollar amount of tax deductions as a business. If you decide to elect Pass-Through Entity tax, file Schedule PTE with your individual tax return.
Sales and Use Tax
Minnesota charges state sales and use tax of 6.875% on goods and services. Local jurisdictions also charge sales and use tax at varying rates, so how much you’ll need to collect as a business will depend on where you’re located within the state. On average, the combined sales and use tax rate is 7.49%, but you can use the Department of Revenue’s Sales Tax Rate Calculator to find your exact rate.
To collect and pay sales and use tax, you’ll need to register with the Department of Revenue and get a Minnesota Tax ID. Sales and use tax must be paid online and are due annually, quarterly, or monthly depending on how much tax you collect each month.
- $100 or less a month: Due annually
- $101 – $500 a month: Due quarterly
- $500 or more a month: Due monthly
Local Minnesota Taxes
In addition to local sales and use tax, some municipalities impose other taxes. For example, Saint Paul levies a Hotel/Motel Lodging Tax and Duluth charges a Charitable Gambling tax.
If your LLC owns property, you’ll also need to pay property tax at the city or county level. Check with your local jurisdiction to find how which local taxes apply to your LLC.
Other Taxes in Minnesota
Your LLC may be on the hook for additional taxes in Minnesota, particularly if you have employees.
Minnesota State Employer Taxes
Do you employ any workers? If so, you’ll need to pay unemployment insurance tax and purchase workers’ compensation insurance.
- Unemployment Insurance (UI) Tax—The UI taxable wage base and tax rates vary from year to year in Minnesota, and the state informs employers of charges for the upcoming year each December. The taxable wage base for 2022 is $38,000, and UI tax rates range from 0.1% to 8.9%, depending on your industry. New employers generally pay lower UI tax rates. To find your rate and pay UI taxes, register with Minnesota Unemployment Insurance.
- Workers’ Compensation—Minnesota law requires that all employers provide workers’ compensation insurance for their employees. Rates for workers’ comp vary according to the level of risk employees are exposed to in the workplace and your claims history.
The Minnesota Department of Revenue collects a number of industry-specific taxes, including:
- Alcoholic Beverage Tax
- Cigarette and Tobacco Taxes
- Gambling Taxes
- Mining and Mineral Taxes
- Petroleum Tax
For full list, check out the Department’s Business Taxes and Fee page.
Do foreign LLCs in Minnesota need to pay Minnesota taxes?
Yes. Out-of-state LLCs registered as Minnesota foreign LLCs are required to pay all applicable business taxes, including sales and use tax, property taxes, and industry-specific taxes. If you’re a non-Minnesota resident and make $12,525 or more in Minnesota annually, you’ll also need to pay individual income tax in Minnesota.