South Dakota does not have a state income tax

South Dakota is one of nine states with no tax on wages, salaries, or other personal income. You will not owe South Dakota income tax on money you earn, regardless of how much you make or where you work. This applies to residents and to people who work in South Dakota but live elsewhere.

The state funds itself through sales tax, property tax, and business taxes instead. If you move to South Dakota or work there, you do not need to file a state income tax return unless you have business income or other specific situations that require one.

Key Takeaways

  • South Dakota has no state income tax on wages, salaries, self-employment income, or investment gains.
  • You still owe federal income tax to the IRS, even though South Dakota collects no state tax.
  • South Dakota has a 4.2% to 6.5% sales tax depending on location, and property taxes vary by county.
  • If you have no business income and are not self-employed, you typically do not file a South Dakota tax return.

What income is not taxed in South Dakota

South Dakota does not tax wages, salaries, tips, bonuses, or any other form of earned income. It also does not tax capital gains, dividends, interest, or retirement distributions. If you receive Social Security, pension payments, or withdrawals from an IRA or 401(k), South Dakota does not tax those either.

This applies whether you are a full-time employee, part-time worker, or contractor. The only exception is if you are self-employed or operate a business — in that case, you may owe South Dakota tax on business net income, though the rules are limited.

Self-employed income and business owners

If you are self-employed or own a business, South Dakota does not tax your business net income. However, you must still file a federal self-employment tax return with the IRS and pay federal self-employment tax (Social Security and Medicare). South Dakota does not collect state self-employment tax.

Some self-employed people in South Dakota do file a state return if they have other income sources or if they want to claim certain deductions, but it is not required for self-employment income alone. Check with a tax professional or the South Dakota Department of Revenue if your situation is complex.

You still owe federal income tax

Having no state income tax does not mean you owe nothing to the government. You still file a federal tax return with the IRS and pay federal income tax based on your income level and filing status. The federal tax rate depends on your income bracket and does not change because you live in South Dakota.

When you file your federal return, you report all income the same way you would if you lived in a state with income tax. South Dakota simply does not add a second layer of state tax on top of what you owe federally.

Sales tax and property tax in South Dakota

South Dakota funds state services through sales tax instead of income tax. The state sales tax is 4.2%, but local sales taxes add to that amount, bringing the total to between 4.2% and 6.5% depending on your county and city. Groceries are generally not taxed, but most other purchases are.

Property tax also varies by county. South Dakota has no statewide property tax rate — each county sets its own rate based on local needs. If you own real estate in South Dakota, you will receive a property tax bill from your county assessor.

Moving to South Dakota or working there

If you move to South Dakota from another state, you do not owe that state income tax once you establish residency in South Dakota. Residency is typically established when you move your permanent home there, register to vote, get a driver's license, or register your vehicle. Keep records of these changes in case you are asked to prove when you became a South Dakota resident.

If you work in South Dakota but live in another state, you owe income tax to your home state, not to South Dakota. Your home state taxes you on income earned anywhere. Some states have reciprocal agreements that affect this, so check with your state's tax authority if you work across state lines.

When you need to file a South Dakota return

Most people who work for wages in South Dakota do not file a state return because there is no state income tax to report. However, you should file a federal return if your income exceeds the federal threshold for your filing status.

You may need to file a South Dakota return if you are self-employed and have business income, if you owe South Dakota sales tax as a business, or if you are claiming a refund of taxes paid to another state. The South Dakota Department of Revenue website lists specific situations that require a return.

Frequently Asked Questions

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

No, unless you are self-employed, own a business, or have other specific income sources. Most wage earners do not file a state return in South Dakota. You still file a federal return with the IRS if your income is above the threshold.

If South Dakota has no income tax, why do I see taxes taken from my paycheck?

Those deductions are federal income tax, Social Security tax, and Medicare tax — all collected by the IRS, not by South Dakota. Your employer sends that money to the federal government. South Dakota does not collect any of it.

Does South Dakota tax retirement income or Social Security?

No. South Dakota does not tax Social Security benefits, pension payments, IRA withdrawals, or 401(k) distributions. You may owe federal tax on some of these, depending on your total income and filing status.

What if I move out of South Dakota — do I owe back taxes?

No. Once you establish residency in another state, you owe that state's income tax going forward. You do not owe South Dakota income tax for any year because South Dakota has no income tax. Your new state may ask you to file a part-year return for the year you moved.

Is South Dakota a good place to move for tax reasons?

South Dakota has no state income tax, which saves money on wages and investment income. However, it has sales tax and property tax, which may offset some savings depending on your spending and whether you own property. Compare your total tax burden in your current state versus South Dakota before deciding.