New Hampshire Has No Income Tax, But Collects Other Taxes

New Hampshire does not have a state income tax on wages, salaries, or most other forms of personal income. This makes it one of nine states without an income tax. However, New Hampshire does collect taxes on specific types of income and maintains other state taxes that affect residents and businesses.

The state funds its operations through a different mix of revenue sources than most states. Understanding which taxes New Hampshire does collect helps you plan your finances and know what to expect when you file taxes or make purchases in the state.

Key Takeaways

  • New Hampshire has no state income tax on wages, salaries, or self-employment income, which is one of the lowest income tax burdens in the country.
  • The state does tax interest and dividend income at 5 percent, though certain retirement accounts and municipal bonds are exempt.
  • New Hampshire collects a 9 percent sales tax on most goods and services, with some categories like groceries and clothing exempt.
  • Property taxes in New Hampshire are among the highest in the nation because the state relies heavily on local property tax revenue instead of income tax.
  • Businesses pay a 7.7 percent corporate income tax and a 3.5 percent business profits tax on net income.

Interest and Dividend Income Tax

While New Hampshire does not tax wages, it does tax interest and dividend income at a flat rate of 5 percent. This applies to interest earned from savings accounts, bonds, and certificates of deposit, as well as dividends from stocks and mutual funds.

Several types of income are exempt from this tax. Retirement account distributions from IRAs and 401(k)s are not subject to the 5 percent tax. Interest from municipal bonds issued by New Hampshire or other states is also exempt. Social Security benefits are not taxed by the state. If you are retired and living on investment income, you may still owe this tax depending on the source of your income.

Sales Tax and What It Covers

New Hampshire charges a 9 percent sales tax on most retail purchases. This applies to clothing, electronics, furniture, and most other goods sold in stores or online when shipped to a New Hampshire address.

Certain items are exempt from sales tax. Groceries and food items purchased for home consumption are not taxed. Prescription medications are also exempt. Some services, such as haircuts and repairs, are subject to the sales tax, though the rules vary by service type. When you buy something in New Hampshire, the 9 percent tax is added at checkout unless the item falls into an exempt category.

Property Taxes and Local Revenue

Because New Hampshire has no income tax, the state relies heavily on property taxes to fund local schools and services. Property tax rates vary by town and county, but New Hampshire's overall property tax burden is among the highest in the nation. A homeowner in one town might pay a significantly different rate than a homeowner in a neighboring town.

Property taxes are set and collected at the local level, not by the state. Your town's assessor determines the value of your property, and the town's tax rate is applied to that value. If you own property in New Hampshire, you will receive a property tax bill from your local town or city, not from the state. These taxes fund schools, roads, police, and other local services.

Business Taxes in New Hampshire

Businesses operating in New Hampshire pay two separate taxes on income. The corporate income tax applies to corporations and is set at 7.7 percent on net income. The business profits tax applies to partnerships, sole proprietorships, and other business structures at a rate of 3.5 percent.

These taxes are based on the net income your business earns, not on gross revenue. A business must file a return with the New Hampshire Department of Revenue Administration if it meets certain income thresholds. Self-employed individuals may owe the business profits tax depending on their net income and business structure.

Taxes on Specific Items and Services

New Hampshire taxes certain specific items and services beyond the general sales tax. Meals and prepared foods are subject to an 8 percent meals and rooms tax, which is separate from the standard 9 percent sales tax. Hotel rooms and short-term lodging also fall under this rate. Alcohol purchases are subject to excise taxes in addition to sales tax.

Vehicles are subject to registration fees and an annual use tax based on the vehicle's value. Cigarettes and tobacco products carry an excise tax. Gasoline is taxed at the pump. These targeted taxes generate revenue for specific purposes, such as road maintenance or public health programs.

How New Hampshire's Tax System Compares

New Hampshire's lack of income tax is its most distinctive feature. Workers keep more of their paychecks compared to residents of states with income taxes. However, this advantage is offset by higher property taxes and sales taxes. A person earning $50,000 per year pays no state income tax, but a homeowner with a $300,000 house may pay several thousand dollars annually in property taxes.

The trade-off means New Hampshire is attractive to high-income earners and retirees living on investment income, but less advantageous for homeowners or people with modest incomes who spend most of what they earn. Your actual tax burden depends on whether you earn wages, own property, or live primarily on investment income.

Frequently Asked Questions

Do I have to pay New Hampshire income tax if I work there but live in another state?

No. New Hampshire has no income tax, so you owe no state income tax on wages earned in New Hampshire regardless of where you live. You may owe income tax to your home state if it has an income tax and taxes residents on out-of-state income, but that is your home state's tax, not New Hampshire's.

Are retirement distributions taxed in New Hampshire?

Distributions from IRAs, 401(k)s, and other may have access to retirement accounts are not subject to New Hampshire's 5 percent interest and dividend tax. However, if you withdraw money and invest it in a taxable account that earns interest or dividends, that income becomes taxable at the 5 percent rate.

What happens if I buy something online from out of state and have it shipped to New Hampshire?

If the seller collects sales tax, they will charge you New Hampshire's 9 percent rate on the purchase. If the seller does not collect sales tax at checkout, you may owe use tax to New Hampshire, though enforcement of use tax on individual purchases is limited. The rules depend on the seller's location and whether they have a physical presence in New Hampshire.

Is there a state income tax on gambling winnings in New Hampshire?

New Hampshire does not tax gambling winnings as state income. However, you must report gambling winnings to the federal government on your federal tax return. The state also does not tax lottery winnings.

Do military members stationed in New Hampshire have to pay state income tax?

No. Military members do not pay New Hampshire income tax on military pay regardless of where they are stationed, because New Hampshire has no income tax. However, they may owe federal income tax and taxes to their home state depending on their circumstances.