Minnesota is one of the more regulated states for the trades. You need a state contractor license to take work on, and the income tax runs up to 9.85%, so both your paperwork and your tax bill are heavier here than average. Knowing the rules is the difference between a healthy margin and a nasty surprise.
Each section below points to a tool that runs your exact numbers for Minnesota.
Tax in Minnesota
Minnesota has a graduated state income tax that runs up to 9.85% at the top, on top of your federal taxes. Graduated means the rate climbs as your profit does, so a good year costs proportionally more. You owe federal income tax and self-employment tax as well, and you make estimated payments to both Minnesota and the IRS through the year.
On sales tax, Minnesota follows the usual rule for the trades: your labor is not taxed, and you pay sales tax on your materials when you buy them rather than charging it to the customer. Consumer for real property; taxable for installed items retaining TPP identity.
Work out what to hold back on the Tax Set-Aside Calculator, which runs the federal and self-employment numbers for Minnesota.
Getting paid: liens and retainage
A mechanic's lien is the tool that actually gets a Minnesota contractor paid, and in Minnesota you generally have to record it within 120 days of your last day of furnishing. Miss it and you lose the lien, so the dates matter.
Enforcing it has its own clock. 1 year from your last day of furnishing. Work out your dates on the Lien Deadline tool, and if they are close, get an attorney to confirm them against the statute (Minn. Stat. §§514.011, 514.08 subd.1, 514.12 subd.3).
On money held back as retainage, here is where Minnesota lands:
- Private work: 5% of a building and construction contract payment.
- Public work: 5% of any progress payment on a public contract.
- Release: Private: 60 days from substantial completion. Public: 60 days from substantial completion.
- Prompt pay: Once you are paid your retainage you have 10 days to pay your subcontractors theirs.
Check the Retainage Calculator before you sign a contract that holds back more.
Free Minnesota retainage letters
Three letters written for Minnesota's rules, with the state's own release clock and its statutory citation already in them. Fill one in on screen and download it as a PDF or a Word file.
- Retainage Release Request (Minnesota), for when the job is done and the money has not come back
- Retainage Overdue: Demand for Payment (Minnesota), for when the release date has passed and nothing has arrived
- Retainage Held Above the Cap: Challenge Letter (Minnesota), for when more is being held than the state appears to permit
Do you need a license in Minnesota?
Minnesota requires a state contractor license to take building work on. The threshold that triggers it: License required when contracting directly with an owner of 1-4 unit residential property and providing TWO OR MORE special skills, or any roofing. The $15,000 is an EXEMPTION, not a trigger. Working unlicensed when your job needs a license is the expensive mistake here. Subcontractors who do not contract with the homeowner are NOT bound; they fall under the separate Construction Contractor Registration Program at 326B.701, which states it is not a substitute for any licensing law. Solar PV installers have needed a residential building contractor or remodeler license since 1 July 2023. The license comes from Department of Labor and Industry (DLI). Minnesota accepts the NASCLA commercial exam, useful if you work across state lines.
Trade licenses for electrical, plumbing and HVAC are usually separate and often required even where a GC license is not. See what applies to your trade on the Contractor License Checker.
Building codes and permits
Minnesota adopts its building codes statewide, so the rules travel with you across the state. Editions still move, so confirm yours with the building department before you price a job.
- Homes: 2018 (published as the 2020 Minnesota Residential Code)
- Electrical: 2026 (effective 17 August 2026; permits filed earlier remain on the 2023 edition)
- Energy: 2012 for dwellings, published as the 2015 Minnesota Residential Energy Code / ASHRAE 90.1-2019 for commercial, published as the 2024 Minnesota Commercial Energy Code
- Plumbing: 2018 UPC (published as the 2020 Minnesota Plumbing Code)
Minnesota does not run one edition across the whole job, and the energy code is where it splits: 2012 for dwellings, published as the 2015 Minnesota Residential Energy Code / ASHRAE 90.1-2019 for commercial, published as the 2024 Minnesota Commercial Energy Code. That matters more than the number itself. If you work on houses, the residential edition is your book, and the single figure quoted in most adoption charts is the commercial one.
Every Minnesota code carries a state year running ahead of the model code underneath, in all four families, so build to the Minnesota label and expect the numbers not to match. Energy is split by chapter: dwellings of three stories or fewer follow a 2012-IECC-based rule the commissioner declined to update in 2020, while everything else follows an ASHRAE 90.1-2019 standard adopted in January 2024. Local authorities have no discretion over content at all, the state code supersedes any municipal code and stretch codes are not permitted; what varies locally is only who administers permits and inspections, and where no municipality does, the county or the department takes it on.
Source: Minnesota Rules chapters 1309, 1315, 1322, 1323 and 4714, under Minn. Stat. §§326B.101, 326B.106, 326B.121, 326B.43 and 326B.435. Read against that source on 2026-08-25.
Check a specific job on the permit tool.
Pay and workers' comp
The minimum wage in Minnesota is $11.41 an hour. CPI-indexed. That is the floor for anyone you put on the books, and it is worth confirming against the state labor department each year because several states step their rate mid-year. Check a rate on the minimum-wage tool.
Workers' comp rates in Minnesota are not published as a single figure; they turn on your trade's class code and your payroll. Get a realistic range on the Workers' Comp Estimator, then get a real quote.
If a client will not pay
If a client will not pay, you can sue for up to $20,000 in Minnesota's Conciliation Court. That covers most unpaid-invoice disputes for a small outfit; a bigger claim goes to regular civil court where you will probably want an attorney. Walk through whether filing is worth it on the Small Claims checker.
The clock runs the other way too: a client generally has 6 years to sue you over the work under a written contract in Minnesota, with an absolute cutoff 10 years after the job is substantially complete. Work out your exposure on the Warranty & Claim Deadline tool.
Common questions
How much state income tax will I pay in Minnesota?
Minnesota has a graduated rate up to 9.85% state income tax on your profit, on top of federal income tax and self-employment tax. Use the Tax Set-Aside Calculator to see what to hold back.
Do I need a contractor's license in Minnesota?
Yes. Minnesota requires a state contractor license. The threshold: License required when contracting directly with an owner of 1-4 unit residential property and providing TWO OR MORE special skills, or any roofing. The $15,000 is an EXEMPTION, not a trigger. It is issued by Department of Labor and Industry (DLI).
What is the small claims limit in Minnesota?
You can sue for up to $20,000 in Minnesota's Conciliation Court. The filing fee is typically $65. Larger claims go to regular civil court.
How long do I have to file a mechanic's lien in Minnesota?
Generally 120 days from your last day of furnishing. Miss it and you lose the lien. Work your own dates out on the Lien Deadline tool.
How much retainage can be held back in Minnesota?
Private: 5% of a building and construction contract payment. Public: 5% of any progress payment on a public contract. Run your own figure on the Retainage Calculator.
Are there free Minnesota contract and payment forms?
Yes. This page links 3 retainage letters written to Minnesota's own release clock and carrying its statutory citation. They are free, there is no sign-up, and you fill one in on screen and download it as a PDF or a Word file.
What is the minimum wage in Minnesota?
$11.41 an hour in Minnesota, above the federal $7.25. Several states step their rate mid-year, so confirm it before you set a payroll.
The honest bit
These are the 2026 rules for Minnesota as they stood when this guide was written, and they change: legislatures move thresholds, deadlines and rates every year. Treat this as general guidance to point you in the right direction, not legal, tax or financial advice. Verify anything you rely on at the source (the IRS, the Minnesota tax and licensing agencies, and your local building department) or with a professional. Where Minnesota does something unusual, the detail is called out above rather than glossed over.
Related: Tax Set-Aside Calculator · Mechanic's Lien Deadline · Contractor License Checker · Small Claims checker · Working in Your State
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Sources
- Minnesota contractor licensing authority · Minnesota contractor licensing authority. Who must hold a contractor or trade license in Minnesota, and the licensing instrument (Minn. Stat. 326B.805 subd. 6(5))
- MN Revisor's Office · Mechanics lien notice, filing and enforcement deadlines in Minnesota: Minn. Stat. §§514.011, 514.08 subd.1, 514.12 subd.3. Verified against this authority on 2026-08-09.
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