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North Dakota Retirement Tax Friendliness

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Overview of North Dakota Retirement Tax Friendliness

North Dakota does not exempt Social Security retirement benefits from taxation. Any Social Security that is taxed federally is also subject to the North Dakota state tax. Sales and property tax rates in North Dakota are close to the national average.

This calculator reflects the changes under the 2018 Trump Tax Plan.
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You will pay of North Dakota state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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North Dakota Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

North Dakota has the fourth lowest population density of any state. That means there are ample open spaces to explore, whether by foot, car, RV or snowmobile. If you plan on settling down in the state permanently for your retirement, you’ll have plenty of chances to see the Roughrider State, but you’ll also need to pay the North Dakota retirement taxes.

Unlike most other states, North Dakota does not exempt Social Security retirement benefits from taxation. Any Social Security that is taxed federally is also subject to the North Dakota state tax. Likewise, income from retirement accounts or a pension is taxable, although a portion of pension income may be deductible.

When it comes to sales and property taxes, retirees in North Dakota pay rates close to the national average. Thanks to the state’s relatively cheap housing, however, retirees may find buying a home in North Dakota to be an affordable proposition.

Is North Dakota tax-friendly for retirees?

Moderately. North Dakota is one of just a handful of states that taxes Social Security, income from retirement accounts and pension income. That being said, income tax rates in North Dakota are quite low. The highest tax rate for any North Dakota taxpayer is just 2.9%.

North Dakota’s total state and average local sales tax rate is 6.78%, which ranks in the bottom half of U.S. states. Property tax rates are slightly above average, though property taxes paid are fairly low because of the state’s low average home price.

Is Social Security taxable in North Dakota?

Yes. Any Social Security retirement income taxed at the federal level will also be subject to the North Dakota income tax (North Dakota income tax brackets are shown in the next section).

The general rule for determining if Social Security is taxable federally is to add one half of your annual Social Security benefits to your income from all other sources. If that total is greater than $25,000 (for single filers, heads of household and qualifying widows and widowers) or $32,000 (for joint-filers) then some of your Social Security benefits may be taxable. This is the same way that the federal government taxes Social Security benefits.

Are other forms of retirement income taxable in North Dakota?

Yes. Income from a retirement account, like a 401(k) or an IRA, is taxable. Income from pension accounts are taxable but may be deductible for some taxpayers. The deduction is equal to $5,000 per person minus all Social Security benefits received that year. So if you receive more than $5,000 in Social Security, there is no deduction.

Otherwise, retirement income is taxed at the rates shown in the table below.

Income Tax Brackets

Single Filers
North Dakota Taxable IncomeRate
$0 - $37,9501.10%
$37,950 - $91,9002.04%
$91,900 - $191,6502.27%
$191,650 - $416,7002.64%
$416,700+2.90%
Married, Filing Jointly
North Dakota Taxable IncomeRate
$0 - $63,4001.10%
$63,400 - $153,1002.04%
$153,100 - $233,3502.27%
$233,350 - $416,7002.64%
$416,700+2.90%
Married, Filing Separately
North Dakota Taxable IncomeRate
$0 - $31,7001.10%
$31,700 - $76,5502.04%
$76,550 - $116,6752.27%
$116,675 - $208,3502.64%
$208,350+2.90%
Head of Household
North Dakota Taxable IncomeRate
$0 - $50,8001.10%
$50,800 - $131,2002.04%
$131,200 - $212,5002.27%
$212,500 - $416,7002.64%
$416,700+2.90%

How high are property taxes in North Dakota?

While property tax rates in North Dakota are slightly higher than the national average, most North Dakotans pay less than $2,000 per year in property taxes. That’s because home values in the state, on which property taxes are based, are relatively low.

In many North Dakota counties, the median home value is less than $100,000. That means property taxes should be low. The deal gets even better for seniors, who may qualify for the North Dakota homestead credit.

What is the North Dakota homestead credit?

The homestead credit is a property tax relief program that can significantly reduce property taxes for qualifying seniors. To qualify, you must be at least 65 years old, own and occupy your home, have total income (including Social Security) of less than $42,000 and have total assets, including your home, worth no more than $500,000.

Eligible seniors will receive a credit equal to between 10% and 100% of their property taxes, up to a maximum of $5,625. If your income is $22,000 or less, your taxable value is reduced by 100% – your property taxes are fully credited up to the maximum of $5,625. From there, the credit decreases for every $4,000 in additional income. The most you can earn in order to still claim some of the homestead credit is $42,000.

Photo credit: ©iStock.com/sakakawea7

How high are sales taxes in North Dakota?

The statewide sales tax rate in North Dakota is 5%. Cities and counties can collect sales taxes as high as 3.5%, which means the highest possible rate you will face in North Dakota is 8.5%. The average total rate is 6.78%.

There are a number of exemptions designed to help reduce the impact of sales taxes on the elderly in North Dakota. These include exemptions for prescription drugs, medical equipment and groceries.

What other North Dakota taxes should I be concerned about?

North Dakota does have an estate tax law, which is based on the federal estate tax. If you have an estate with a value greater than the federal exemption amount ($11.2 million in 2018) then you will need to file a North Dakota estate tax return. However, because of changes to the federal law, you won’t actually have to pay any estate taxes in North Dakota.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration