North Dakota has no state income tax on wages, retirement income, or most other personal earnings

North Dakota is one of nine states that does not tax individual income. That means you pay no state income tax on wages, salaries, tips, Social Security, pensions, or retirement account withdrawals. You still owe federal income tax, and you still pay North Dakota sales tax, property tax, and other state taxes — but the state does not take a cut of your paycheck or retirement distributions.

This applies whether you work in North Dakota or live there and work elsewhere. If you are a North Dakota resident, you file a federal return but no state income tax return. If you move to North Dakota from a state that has income tax, you stop owing that state's tax once you establish residency in North Dakota.

Key Takeaways

  • North Dakota collects no state income tax on wages, retirement income, investment gains, or most other personal earnings.
  • You still owe federal income tax and must file a federal return, even though North Dakota has no state return.
  • North Dakota makes up the lost income tax revenue through sales tax (5.5 percent), property tax, and other state taxes.
  • If you move to North Dakota from another state, you stop owing that state's income tax once you become a North Dakota resident.
  • Self-employed people and business owners in North Dakota still owe federal self-employment tax and federal income tax on business profits.

What taxes North Dakota does collect

Without income tax, North Dakota relies on other revenue sources. The state sales tax is 5.5 percent, and local jurisdictions can add up to 2.5 percent on top of that, bringing the total to as high as 8 percent in some areas. Groceries are exempt from sales tax, but most other purchases are taxed.

Property tax is the second major source. North Dakota property tax rates vary by county and municipality, but the effective rate is typically between 0.8 and 1.2 percent of home value per year. You also pay tax on vehicles, and the state collects excise tax on fuel, alcohol, and tobacco.

Businesses pay corporate income tax in North Dakota, but individuals do not. If you own a business as a sole proprietor or partner, you report business income on your federal return and owe federal tax on it, but North Dakota takes nothing.

How this affects your take-home pay

The lack of state income tax means more of your paycheck stays with you compared to living in a state with income tax. A worker earning $50,000 per year in North Dakota owes no state income tax, whereas the same worker in Minnesota or Colorado would owe several thousand dollars to the state.

However, North Dakota's higher sales tax and property tax can offset some of that benefit, depending on how much you spend and whether you own property. A person who rents and spends little may come out significantly ahead. A homeowner with a high property value may see less overall savings.

If you are retired and living on Social Security, pensions, or retirement account withdrawals, North Dakota's lack of income tax is a major advantage. Many retirees move to North Dakota specifically to avoid state income tax on fixed income.

Moving to North Dakota from another state

When you move to North Dakota and establish residency, you stop owing income tax to your previous state. Residency is usually established when you move your permanent home, register to vote, get a driver's license, and register your vehicle — typically within 30 to 60 days of arrival.

Your previous state may still tax income you earned there before you moved. If you worked in Minnesota for part of the year and then moved to North Dakota, Minnesota taxes the income you earned while you were a resident. You report this on your federal return and claim a credit for taxes paid to the other state so you do not pay twice.

If you work remotely for a company in another state, North Dakota does not tax your wages. Your employer's state may tax you if you are still considered a resident there, but once you move and change your residency, North Dakota does not claim the income.

Self-employed people and business owners

If you are self-employed or own a business in North Dakota, you owe no state income tax on your business profits. However, you still owe federal self-employment tax (Social Security and Medicare tax) and federal income tax on all business earnings.

You file a Schedule C with your federal return to report business income and expenses. North Dakota does not require a separate state business tax return because there is no state income tax. You may still owe local taxes or licensing fees depending on your business type and location.

Retirement income and investment gains

North Dakota does not tax Social Security benefits, pension income, or distributions from retirement accounts like 401(k)s and IRAs. This makes the state attractive to retirees. You owe federal tax on most retirement income, but the state takes nothing.

Investment income — capital gains, dividends, and interest — is also not taxed by North Dakota. You owe federal capital gains tax if you sell an investment at a profit, but North Dakota does not tax the gain. This applies whether you live in North Dakota or just own property or investments there.

How North Dakota compares to other no-income-tax states

Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and North Dakota. All nine avoid taxing wages and most other personal income. However, they differ in how they make up the revenue.

Alaska has oil revenue and no sales tax. Florida, Nevada, Texas, and Washington have no sales tax on groceries but tax other purchases heavily. Tennessee and South Dakota tax some retirement income. North Dakota taxes all sales and property but exempts groceries from sales tax.

If you are comparing states for tax purposes, look at the total tax burden — income, sales, and property — rather than income tax alone. A state with no income tax but high property tax may cost more overall than a state with moderate income tax and low property tax.

Frequently Asked Questions

Do I have to file a state tax return in North Dakota?

No. North Dakota has no state income tax, so you do not file a state return. You still file a federal return if you owe federal tax or are due a refund. Some people file federal returns even when they owe nothing, to claim refundable credits like the Earned Income Tax Credit.

If I work in another state but live in North Dakota, do I owe that state income tax?

Usually yes, if you work in a state that has income tax. Your employer's state typically taxes wages earned within that state, regardless of where you live. You report this income on your federal return and claim a credit for taxes paid to the other state. North Dakota does not tax the income.

Does North Dakota tax retirement account withdrawals?

No. Withdrawals from 401(k)s, IRAs, pensions, and other retirement accounts are not taxed by North Dakota. You owe federal tax on most retirement income, but the state takes nothing. This applies to all retirees, whether they worked in North Dakota or elsewhere.

What is the North Dakota sales tax rate?

The state sales tax is 5.5 percent. Local jurisdictions can add up to 2.5 percent, bringing the total to as high as 8 percent in some areas. Groceries are exempt from sales tax in North Dakota.

If I move out of North Dakota, do I owe back taxes?

No. Once you move and establish residency in another state, you owe that state's income tax on income earned after you move. You do not owe North Dakota anything because the state has no income tax. Your new state may tax income you earned in North Dakota before you moved, depending on that state's rules.