Overview of South Dakota Taxes
South Dakota is one of seven states that does not levy a state income tax. Additionally, no South Dakota cities have local income taxes. Taxpayers will, of course, still have to pay the federal income tax, as well as FICA taxes.
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- Our Tax Expert
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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South Dakota Paycheck Calculator
South Dakota Paycheck Quick Facts
- South Dakota income tax rate: 0%
- Median household income: $56,499 (U.S. Census Bureau)
- Number of cities that have local income taxes: 0
How Your South Dakota Paycheck Works
Since South Dakota is one of seven states with no personal income tax, FICA and federal income taxes are the only concern for workers here. The lack of income taxes means more money in your pocket throughout the year.
When we talk about FICA taxes, the two factors at play are Social Security and Medicare taxes. Each pay period, 6.2% of your paycheck goes to your share of Social Security taxes and 1.45% goes to Medicare taxes. Your employer matches these contributions so the total amount is double what you pay.
While most of the time you only pay 50% of the total FICA taxes, this is not always the case. If you’re a self-employed individual in the Mount Rushmore State, you’ll need to pay all FICA taxes yourself since you won’t have an employer to match the remaining half. If you do pay the full tax, make sure to look into the deduction of half the FICA taxes on your tax return (you will need to attach Schedule SE to your 1040).
Each time you receive a South Dakota paycheck, you will notice a federal income tax withholding. The amount of federal income tax that your employer withholds from your paycheck depends largely on the information you provide on the W-4 form you submit. This is why employers require you to submit a W-4 when you start a new job. You should also submit a new W-4 to reflect any updates to your filing status, dependents or salary.
If you haven't recently, make sure to double check your withholdings on your Form W-4, as President Trump's 2017 tax plan caused a slight change in withholding calculations. Additionally, the IRS made changes to the W-4 for 2020. This will affect you if you were hired on or after Jan. 1, 2020 or if you were hired before 2020, but intend to adjust your withholdings or change jobs in 2020. The new form removes the use of allowances and applies a five-step process that asks filers to indicate any additional income or jobs, along with other personal information.
As is mentioned above, South Dakota does not have a state income tax. There also aren’t any local income taxes. Actually, South Dakota is generally a tax-friendly state. It also has one of the lowest sales taxes in the nation with a base sales tax of just 4.5% (though local sales tax may bring the total rate by to 6.5% in some counties).
A financial advisor in South Dakota can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
If the tax laws have you wishing you could be a resident of the Mount Rushmore State, take a look at our South Dakota mortgage guide to understand your mortgage options for buying a home in the state. It includes information for those considering a refinance on your mortgage as well.
How You Can Affect Your South Dakota Paycheck
While you can’t avoid federal income taxes, you can take steps that affect how much you pay. Though you can no longer claim allowances on your W-4, South Dakotans can elect to maximize their paycheck by contributing more to a 401(k) or another type of retirement account. This is because the money you put into a 401(k) or 403(b) is taken from your wages before taxes are applied. In other words, increasing your retirement contributions actually lowers your taxable income.
Putting funds into a health savings account (HSA) or flexible spending account (FSA), if your employer offers them, works in a similar fashion. You can use the funds you put into these accounts for health-related expenses, like medical copays or prescriptions. However, it's important to keep in mind that there is an expiration date on money you put into an FSA. Only $500 will roll over from year to year.
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics
