South Dakota does not charge state income tax on wages, salaries, or investment returns

South Dakota is one of nine states with no state income tax. You will not owe South Dakota income tax on money you earn from a job, self-employment, dividends, capital gains, or retirement withdrawals. If you live and work in South Dakota, you do not file a state income tax return.

This does not mean South Dakota has no taxes. The state funds schools, roads, and services through sales tax, property tax, and other levies. Federal income tax still applies — you will owe that to the IRS regardless of where you live. But the state itself does not take a cut of your income.

Key Takeaways

  • South Dakota collects no state income tax on wages, self-employment income, investment gains, or retirement distributions.
  • You still owe federal income tax to the IRS, and you still pay South Dakota sales tax and property tax.
  • If you move to South Dakota from a state with income tax, you may owe that state's tax on income earned before you left.
  • South Dakota's lack of income tax does not reduce your federal tax burden or change how you file with the IRS.

What taxes South Dakota does collect

South Dakota funds state government through sales tax, property tax, and business taxes. The statewide sales tax rate is 4.5 percent, though cities and counties can add local sales tax on top of that — the combined rate ranges from 4.5 to 7.5 percent depending on where you shop. Groceries are exempt from sales tax in South Dakota.

Property owners pay property tax to their county. The rate varies by county and is based on the assessed value of the land and buildings. South Dakota also taxes business income, corporate profits, and certain types of financial institutions. Cigarettes, alcohol, and motor fuel carry excise taxes as well.

If you own a business, you may owe South Dakota's sales tax on goods you sell, even though you do not owe income tax on the profit. Self-employed people and business owners still file federal income tax returns and pay federal self-employment tax.

How federal income tax works when you live in South Dakota

Living in South Dakota does not change your federal tax obligations. You still file a Form 1040 with the IRS each year if your income exceeds the filing threshold. For 2024, that threshold is $14,600 for a single person under 65 and $29,200 for a married couple filing jointly, though the exact amount changes each year.

You report all income — wages, self-employment, investment returns, retirement distributions — to the federal government. You pay federal income tax at the rates set by federal law. South Dakota's lack of state income tax does not reduce the federal amount you owe.

If you are self-employed, you also owe federal self-employment tax, which covers Social Security and Medicare. This is separate from income tax and applies in every state, including South Dakota.

Moving to South Dakota from another state

If you move to South Dakota from a state with income tax, you may still owe that state's tax on income you earned before you moved. Most states tax income based on where you earned it and where you lived when you earned it. You will need to file a part-year return in your old state for the months you lived there.

The rules vary by state. Some states allow you to stop filing once you move out; others require you to file for the year you leave. Contact your former state's tax department or a tax professional to confirm what you owe. Keep documentation of your move date — a lease, utility bill, or job offer letter — in case the state asks for proof.

Once you are a South Dakota resident, you do not file a state income tax return in South Dakota. You still file federal taxes and pay South Dakota sales and property tax like any other resident.

Retirement income and investment income in South Dakota

South Dakota does not tax retirement income. If you receive Social Security, pension payments, distributions from an IRA or 401(k), or income from rental property, South Dakota does not take a state share. This applies to all types of retirement accounts and all types of investment income.

You still owe federal income tax on most retirement and investment income. Social Security benefits are taxed at the federal level if your combined income exceeds certain thresholds. IRA and 401(k) distributions are taxed as federal income. Capital gains and dividends are taxed federally as well.

The federal tax treatment of retirement income depends on the type of account and your age. A financial advisor or tax professional can explain what you will owe on your specific situation, but South Dakota itself will not tax any of it.

Other states with no income tax

South Dakota is one of nine states with no state income tax. The others are Alaska, Florida, Nevada, Tennessee, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax only investment income, not wages.

These states fund government differently than income-tax states. Most rely heavily on sales tax, property tax, and business taxes. Some have oil or mineral wealth that funds the state budget. The trade-off is that residents pay higher sales tax or property tax than they might in an income-tax state.

If you are comparing the total tax burden across states, look at all taxes together — not just income tax. A state with no income tax might have higher property tax or sales tax that offsets the savings.

How to file taxes as a South Dakota resident

You do not file a South Dakota state income tax return. You file only a federal Form 1040 with the IRS. You can file online through the IRS Free File program if your income is below the threshold, or you can use tax software or a tax professional.

If you are self-employed, you also file Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax) with your federal return. You do not file these with South Dakota because the state does not tax income.

Keep records of your income, deductions, and expenses for at least three years in case the IRS asks questions. If you moved to South Dakota during the year, keep documentation of your move date and file a part-year return in your former state.

Frequently Asked Questions

Do I have to file a South Dakota tax return if I live there?

No. South Dakota has no state income tax, so you do not file a state return. You file only a federal Form 1040 with the IRS if your income is above the filing threshold. You still pay South Dakota sales tax and property tax.

If South Dakota has no income tax, how does the state pay for schools and roads?

South Dakota funds government through sales tax (4.5 percent statewide, plus local additions), property tax, business taxes, and excise taxes on fuel, cigarettes, and alcohol. The state also receives federal grants for highways and other programs.

Do I owe federal income tax if I live in South Dakota?

Yes. South Dakota's lack of state income tax does not affect federal taxes. You owe federal income tax on all income above the filing threshold, and you file a Form 1040 with the IRS each year. The federal tax rate and rules are the same in every state.

Is Social Security taxed in South Dakota?

South Dakota does not tax Social Security benefits. However, the federal government may tax your benefits if your combined income exceeds certain thresholds. Whether you owe federal tax on Social Security depends on your total income, not on where you live.

What if I moved to South Dakota mid-year?

You do not file a South Dakota return. You file a federal return for the full year. If you moved from another state, you may owe that state's income tax on the income you earned before you moved. File a part-year return in your former state and keep proof of your move date.