South Dakota Maintains No State Income Tax Policy in 2025

Key Takeaways

• South Dakota has no state income tax for all residents in 2025, including retirees and remote workers.
• Residency requires living over 183 days, permanent home, driver’s license, vehicle registration in South Dakota.
• State funds services via sales tax (4.2%) and property tax (~1.01%); no estate or inheritance taxes.

South Dakota stands out in the United States 🇺🇸 for its unique approach to state income tax. As of 2025, the state continues its long-standing policy of not imposing a personal income tax on residents. This has important effects for people moving to South Dakota, current residents, retirees, business owners, and anyone considering making the state their home. Understanding who qualifies for this benefit, what the requirements are, and how to comply with other state tax rules is essential for anyone living or planning to live in South Dakota. Below, you’ll find a detailed overview of the requirements, eligibility, documentation, and practical steps to make the most of South Dakota’s tax-friendly environment.

Who Qualifies for South Dakota’s No State Income Tax Policy?

All residents of South Dakota qualify for the state’s no income tax policy. This means that if you live in South Dakota, you do not have to pay state income tax on your wages, salary, retirement income, or any other personal income. There are no exceptions or special categories—every resident benefits from this rule.

Key groups who benefit include:
– New immigrants and recent arrivals: Anyone who establishes residency in South Dakota is covered.
– Long-term residents: People who have lived in the state for years continue to enjoy no state income tax.
– Retirees: Those receiving Social Security, pensions, or withdrawals from retirement accounts do not pay state income tax on this income.
– Remote workers: If you live in South Dakota but work for a company based elsewhere, your income is not taxed by the state.
– Business owners: Sole proprietors and partners do not pay state income tax on business earnings, though other taxes may apply.

Example:
Maria, a software developer, moves from California to South Dakota in 2025. She works remotely for a company based in New York. Once she becomes a South Dakota resident, she no longer pays state income tax on her salary to South Dakota, even though she earns her income from out of state.

Detailed Eligibility Criteria

Residency Requirements

To benefit from South Dakota’s no state income tax, you must be a resident of the state. Residency is generally determined by where you live and intend to make your permanent home. The South Dakota Department of Revenue uses several factors to decide if you are a resident, including:
– Where you spend most of your time during the year
– Where your main home is located
– Where you are registered to vote
– Where your driver’s license is issued
– Where your children attend school (if applicable)

You are considered a resident if:
– You live in South Dakota for more than half the year (183 days or more)
– You have a permanent home in the state
– You take steps to make South Dakota your main home, such as getting a South Dakota driver’s license and registering your car in the state

Nonresidents:
If you live in another state but own property or work in South Dakota, you are not considered a resident for income tax purposes. However, since South Dakota does not have a state income tax, you still do not owe state income tax on income earned in South Dakota.

Special Cases:
– Military personnel: If you are stationed in South Dakota but your home state is elsewhere, you may still be considered a resident of your home state for tax purposes.
– Students: If you move to South Dakota to attend school but keep your permanent home in another state, you may not be considered a resident.

Example:
John, a retiree, spends six months each year in South Dakota and six months in Arizona. He owns homes in both states. If he spends more than 183 days in South Dakota and makes it his main home, he is considered a resident and does not pay state income tax.

Required Documentation

Because South Dakota does not require residents to file a state income tax return, there is no need to gather or submit income tax documents to the state. However, you may need to show proof of residency for other reasons, such as getting a driver’s license, registering to vote, or enrolling children in school.

Common documents used to prove residency include:
– South Dakota driver’s license or ID card
– Lease agreement or property deed showing your South Dakota address
– Utility bills in your name at a South Dakota address
– Voter registration card
– Vehicle registration in South Dakota
– Bank statements or official mail sent to your South Dakota address

Tip:
Keep copies of these documents in case you need to prove your residency status for federal tax purposes or for other state programs.

Application Process Overview

There is no application process for state income tax in South Dakota because the state does not collect this tax. Residents do not need to file a state income tax return, submit forms, or pay any state income tax on their earnings.

What you do need to do:
– File federal taxes: All residents must still file a federal income tax return with the Internal Revenue Service (IRS) if required by federal law. You can find the latest federal tax forms and instructions on the IRS official website.
– Comply with other state taxes: While there is no state income tax, South Dakota does collect other taxes, such as sales tax and property tax. You may need to pay these depending on your situation.

For new residents:
– Update your address with the IRS and Social Security Administration
– Apply for a South Dakota driver’s license and register your vehicle in the state
– Register to vote in South Dakota if you plan to participate in elections

For employers:
– Do not withhold state income tax from employee paychecks
– Continue to withhold and remit federal income tax as required

For retirees:
– No need to report retirement income to the state
– Social Security, pensions, and retirement account withdrawals are not taxed by South Dakota

Practical Tips for Meeting Requirements

1. Establish Clear Residency
– Spend more than half the year in South Dakota if you want to be considered a resident
– Get a South Dakota driver’s license as soon as possible
– Register your vehicle in the state
– Use your South Dakota address for all official documents and correspondence

2. Keep Good Records
– Save copies of utility bills, lease agreements, and other documents that show your South Dakota address
– Keep your voter registration up to date
– If you split time between states, keep a log of where you spend each day

3. Understand Other State Taxes
– Sales Tax: South Dakota charges a state sales tax of 4.2%. Local governments may add their own sales taxes, bringing the average combined rate to about 6.11%. This applies to most goods and some services.
– Property Tax: Property taxes in South Dakota are above the national average, with a median rate of about 1.01% of a home’s assessed value.
– No Estate or Inheritance Tax: South Dakota does not collect estate or inheritance taxes, making it attractive for retirees and people planning to leave assets to their heirs.

4. Federal Tax Compliance
– Even though you do not pay state income tax, you must still file federal taxes if your income meets the IRS filing requirements.
– If you move to South Dakota during the year, update your address with the IRS to ensure you receive important tax documents.

5. For Businesses and Employers
– You do not need to withhold state income tax from employee paychecks
– Make sure to comply with federal payroll tax rules
– Collect and remit sales tax on taxable goods and services sold in South Dakota

6. For Remote Workers
– If you live in South Dakota but work for a company in another state, your income is not taxed by South Dakota
– Check with your employer to make sure they do not withhold state income tax for another state unless you are required to pay it

7. For Retirees
– Social Security, pensions, and retirement account withdrawals are not taxed by South Dakota
– You may still owe federal taxes on some retirement income

8. For New Immigrants
– Once you establish residency in South Dakota, you are not required to pay state income tax
– Make sure to update your address with all relevant agencies and employers

9. Stay Informed
– Tax laws can change, so check the South Dakota Department of Revenue’s official website for the latest information

Common Concerns and Questions

Do I need to file a state income tax return in South Dakota?
No. Residents do not file a state income tax return because there is no state income tax.

What if I move to South Dakota in the middle of the year?
Once you establish residency, you are covered by the state’s no income tax policy for the time you are a resident. You may need to file a part-year resident return in your previous state, depending on their rules.

Are there any plans to introduce a state income tax in 2025?
No. As of July 10, 2025, there are no proposals or legislative efforts to introduce a state income tax in South Dakota. The governor and legislature support keeping the current policy.

How does South Dakota fund state services without income tax?
The state relies on sales tax, property tax, and other sources of revenue. This allows South Dakota to keep its no income tax policy while still funding schools, roads, and other services.

Does South Dakota tax retirement income?
No. Retirement income, including Social Security, pensions, and withdrawals from retirement accounts, is not taxed by the state.

What other taxes should I be aware of?
– Sales tax: 4.2% state rate, with local additions averaging 6.11%
– Property tax: About 1.01% median rate on home value
– No estate or inheritance tax

Do I need to pay state income tax if I work in South Dakota but live elsewhere?
No. South Dakota does not tax nonresidents on income earned in the state.

What about business taxes?
South Dakota does not have a corporate income tax for most businesses. However, certain financial institutions may be subject to a bank franchise tax.

Summary Table: South Dakota State Income Tax (2025)

Official Resources and Where to Get Help

For the most accurate and up-to-date information, visit the South Dakota Department of Revenue. This site provides details on all state taxes, residency requirements, and contact information for further questions. You can also call the Department of Revenue directly if you need help with specific issues.

If you need federal tax forms or want to update your address with the IRS, visit the IRS Forms and Instructions page.

Analysis from VisaVerge.com suggests that South Dakota’s stable, no-income-tax policy continues to attract new residents, retirees, and remote workers. The lack of a state income tax, combined with no tax on retirement income and no estate or inheritance taxes, makes the state especially appealing for people looking to keep more of their earnings.

Key Takeaways and Next Steps

• South Dakota does not have a state income tax in 2025.
• All residents benefit from this policy, including new arrivals, retirees, and remote workers.
• There are no state income tax forms to file or pay.
• Residency is based on where you live and intend to make your permanent home.
• Keep good records to prove residency if needed.
• Be aware of other state taxes, such as sales and property taxes.
• Stay informed by checking the South Dakota Department of Revenue’s official website for updates.

If you are considering moving to South Dakota or have recently arrived, you can enjoy the benefits of no state income tax right away. Make sure to establish your residency, update your documents, and comply with other state and federal tax rules. This simple, stable tax environment is one of the reasons South Dakota remains a popular choice for people seeking a tax-friendly place to live in 2025.

Learn Today

Residency → The status of living in South Dakota permanently for tax purposes, usually over 183 days per year.
State Income Tax → A tax levied by a state government on individual or business earnings within its borders.
Sales Tax → A consumption tax imposed on the sale of goods and services, currently 4.2% statewide in South Dakota.
Property Tax → A tax on real estate value paid annually to local governments; South Dakota’s median rate is about 1.01%.
Estate Tax → A tax on the transfer of property after someone dies; South Dakota does not impose this tax.

This Article in a Nutshell

South Dakota’s unique 2025 policy eliminates state income tax, benefiting residents, retirees, and remote workers. Establish residency by living over 183 days and updating documents. While state income tax is absent, sales and property taxes ensure public service funding, attracting new residents seeking a tax-friendly environment with straightforward rules.
— By VisaVerge.com