Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden. States raise revenue in many ways including sales taxes, excise taxes, license taxes, income taxes, intangible taxes, property taxes, estate taxes and inheritance taxes. Depending on where you live, you may end up paying all of them or just a few. Following are the taxes you can expect to pay if you retire in North Dakota:
State Sales Tax: 5% (food and prescription drugs exempt); 6% on lodging, 7% on alcoholic beverages. Cities or counties which have adopted home rule charters may levy additional sales and use taxes up to 3.0%. Gasoline Tax: 23 cents/gallon Diesel Fuel Tax: 23 cents/gallon
Cigarette Tax: 44 cents/pack of 20
Personal Income Taxes
Tax Rate Range: Low – 1.51%; High – 3.99% Rates for single person Income Brackets: Lowest – $35,350; Highest – $388,350 Rates for single person. Refer to tax table at http://www.nd.gov/tax/indincome/forms/2011/taxtables.pdf
. Number of Brackets: 5. The tax brackets reported are for single individuals. For married taxpayers the same rates apply to income brackets ranging from $59,100 to $388,350. An additional $300 personal exemption is allowed for joint returns or unmarried head of household. Personal Exemptions: Single – $3,650; Married – $7,300; Dependents – $3,650. There is also a new marriage income tax credit with a maximum limit of $300. State allows personal exemption or standard deductions as provided in the Internal Revenue Code Standard Deduction: Federal amount ($5,950 – single, $11,900 – joint; single over 65 – $1,400; married $1,100)) Medical/Dental Deduction: Full Federal Income Tax Deduction: None Retirement Income Taxes: A total of $5,000 can be excluded from military, civil service, some state/local government, and qualified pensions, minus amount of Social Security received. Out-of-state government pensions are fully taxed. Call 701-328-3275 for more information. Retired Military pay: North Dakota’s individual income tax law provides only one special deduction for active members of the military. It does not include combat pay that is exempt from federal income tax. The current income tax law does not provide for any special deductions for retired military members. Military Disability Retired Pay: Retirees who entered the military before Sept. 24, 1975, and members receiving disability retirements based on combat injuries or who could receive disability payments from the VA are covered by laws giving disability broad exemption from federal income tax. Most military retired pay based on service- related disabilities also is free from federal income tax, but there is no guarantee of total protection.
VA Disability Dependency and Indemnity Compensation: VA benefits are not taxable because they generally are for disabilities and are not subject to federal or state taxes. Military SBP/SSBP/RCSBP/RSFPP: Generally subject to state taxes for those states with income tax. Check with state department of revenue office.
All real property in the state is subject to tax by the state, counties, townships, and municipalities. Residential property is taxed as 9% of assessed value. For the most part, personal property is exempt from property tax. Personal property of utilities companies that are assessed by the State board of Equalization is subject to property tax.
Household personal property, inventories, and machinery and equipment used in trade or manufacture are exempt from property taxes. Machinery and equipment used in refining products from oil or gas extracted from the earth is deemed to be real property and therefore subject to property taxes. A mobile home used as a residence or place of business is also subject to a property tax.
There is also a Homestead Tax Credit available to senior citizens (65+) or disabled persons who own or rent their home. Your income, plus the income of your spouse and any dependents, may not exceed $26,000 for the calendar year preceding the assessment date. Your assets may not exceed $75,000. The maximum homestead credit is $4,500 (income $0 to $18,000). For details refer to http://www.nd.gov/tax/misc/faq/property
. For a brochure on the Homestead Tax Credit, go to http://www.nd.gov/tax/property/pubs/homesteadcredit-brochure.pdf
. Call 701-328- 3127 for details.
Inheritance and Estate Taxes
North Dakota does not have an inheritance tax. It was repealed in 1927 and replaced with an estate tax. There is an estate tax based on a decedent’s total gross estate and limited to the credit for state death taxes allowed on the Federal 706 estate tax return. North Dakota’s definition of a deceased person’s taxable estate is identical to the federal definition and North Dakota recognizes all federal exemptions and deductions.
For further information, visit the North Dakota State Tax Department site http://www.nd.gov/tax or call 701-328- 3275
To review the North Dakota tax guide, refer to http://www.nd.gov/tax/genpubs/2010-redbook.pdf
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