Overview of South Dakota Retirement Tax Friendliness
There is no state income tax in South Dakota. This means Social Security, pensions and other forms of retirement income are all tax-free. Sales taxes are quite low in South Dakota, and though property taxes are somewhat high, low-income seniors can offset those costs.
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South Dakota Retirement Taxes
If you’re considering a relocation for your retirement and you’re concerned about taxes, South Dakota may be a good choice. The state’s tax system is among the most retiree-friendly in the country. It has no income tax, relatively low sales taxes, high property taxes and no estate or inheritance taxes.
Living costs in South Dakota are average. In fact, in many parts of the state, retirees can afford the basic cost of living with the average Social Security income alone. Of course, seniors who dislike cold weather might find South Dakota unpleasant. The average high temperature for the month of January in Sioux Falls is around 26 degrees Fahrenheit.
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Is South Dakota tax-friendly for retirees?
South Dakota is among the most tax-friendly states in the country for retirees. There is no state income tax here, which means Social Security, pensions and other forms of retirement income are all devoid of taxes. Additionally, sales taxes are fairly cheap.
Is Social Security taxable in South Dakota?
Social Security is not taxed at the state level in South Dakota. In fact, South Dakota has no income tax whatsoever. That means it does not tax any forms of income: Social Security, wages, investment income and so on.
Are other forms of retirement income taxable in South Dakota?
Any retirement income from a 401(k), IRA, pension or any other source will not be taxed at the state level. Keep in mind, however, that you may still owe federal taxes on those income sources.
How high are property taxes in South Dakota?
Property tax rates in South Dakota are somewhat higher than average. But in general, the cost of living in South Dakota is fairly low. The median home value in Sioux Falls (the largest city in South Dakota) is $317,760, whereas the national median is about $281,400.
If you own a home in South Dakota, you can expect to pay around 1.08% of your home's value in annual property taxes. There are, however, some programs to help seniors with high property tax bills in South Dakota.
What is the South Dakota Homestead Exemption Program?
South Dakota allows people over the age of 70 with income below a certain level to delay payment of all property taxes until their home is sold. You still owe property taxes, and they accrue interest at a rate of 4% annually. But you can pay them off with the proceeds of an eventual home sale. The income restrictions are as follows: total income less than $16,000 per year for single-person households or total income less than $20,000 per year for multi-person households (including all income sources).
Additionally, in some cities seniors can also apply to have their municipal taxes from the previous year reduced. This is called the Property Tax Reduction from Municipal Taxes. You must be at least 65 years old to apply. You can have an income of no higher than $5,758 for single households or $7,765 for multi-person households. The reduction ranges from 35% to 17% for single-member households and 55% to 22% for multi-person households, depending on your level of income.
How high are sales taxes in South Dakota?
The statewide sales tax rate in South Dakota is 4.5%, and most major cities collect an additional rate of 1.90%, neither of which are very high. However, medical services and prescription drugs are not taxed. Groceries and clothing are taxable, though.
What other South Dakota taxes should I be concerned about?
There is no estate tax in South Dakota and the inheritance tax was repealed in 2000. Really, the only taxes retirees moving to South Dakota need to keep in mind are federal taxes on income and the federal estate tax. These apply regardless of where you live.