Does North Dakota Tax Social Security?

Navigating retirement income can be challenging. For many, Social Security benefits form a significant part of their financial planning during retirement. Taxation of these benefits is not uniform, as state rules differ from federal guidelines. Understanding how your Social Security income is treated by both federal and state tax authorities is important for effective financial management.

North Dakota’s Approach to Social Security Taxation

North Dakota does not tax Social Security benefits. Since the 2021 tax year, Social Security benefits have been fully exempt from state taxation for all individuals residing in North Dakota, regardless of their income level.

Previously, North Dakota had a policy where taxpayers could deduct their Social Security benefits if their adjusted gross income (AGI) was below certain thresholds, specifically $50,000 for single filers and $100,000 for those married filing jointly. However, this has changed, and the state now provides a complete exemption. While other forms of retirement income, such as pensions or withdrawals from 401(k)s and IRAs, may still be subject to state income tax, Social Security benefits are explicitly excluded.

Federal Taxation of Social Security Benefits

While North Dakota does not tax Social Security benefits at the state level, these benefits may still be subject to federal income tax. The Internal Revenue Service (IRS) uses a calculation known as “provisional income” to determine if and how much of your Social Security benefits are taxable. Provisional income is generally calculated by taking your adjusted gross income, adding any nontaxable interest, and then adding half of your Social Security benefits.

The amount of your Social Security benefits subject to federal tax depends on your provisional income and your tax filing status. For single filers, if your provisional income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your provisional income exceeds $34,000, up to 85% of your benefits could be subject to federal income tax.

For married couples filing jointly, if their provisional income falls between $32,000 and $44,000, up to 50% of their Social Security benefits may be taxable. If their provisional income surpasses $44,000, up to 85% of their benefits may be included in their federally taxable income. It is important to note that these federal thresholds are distinct from any state-level rules, and even if benefits are taxed federally, they remain exempt from state taxation in North Dakota.