Does South Dakota Tax Military Retirement?
Understand South Dakota's tax policies for military retirement and the wider financial picture for retirees in the state.
Understanding state tax policies is important for military retirees evaluating their finances. The tax treatment of military retirement pay can significantly impact a retiree’s finances. This article explores South Dakota’s approach to taxing military retirement income.
South Dakota’s Approach to Income Taxation
South Dakota does not impose a state income tax on any form of income, including military retirement pay. Retirees living in or considering a move to South Dakota will find that their pensions, wages, salaries, capital gains, interest, and dividends are not subject to a state income tax burden.
The state’s tax framework is designed without a personal income tax, which simplifies the financial landscape for all residents. This policy extends to military retirees, ensuring that their hard-earned retirement income remains fully accessible at the state level. Consequently, there is no state income tax return to file, and no state income tax is withheld from military retirement pay. This provides a clear financial advantage for those receiving military pensions.
Broader Tax Landscape in South Dakota for Retirees
While military retirement income is not subject to state income tax in South Dakota, retirees, like all residents, encounter other forms of taxation. The state primarily relies on sales and property taxes to generate revenue. Understanding these taxes is important for a comprehensive financial outlook in South Dakota.
The state sales tax rate is 4.5%, and local municipalities may add their own sales taxes, typically ranging up to an additional 2%. This can result in a combined state and local sales tax rate ranging from 4.5% to 6.5%, with an average combined rate of 6.11%. Sales tax generally applies to retail sales of tangible personal property and many services, though certain services may be exempt.
Property taxes constitute the main source of revenue for local governments, including schools, counties, and municipalities, rather than the state itself. Property values are assessed at their full market value and then equalized to 85% for tax calculation purposes. The average effective property tax rate across South Dakota is approximately 1.08% to 1.14%, but specific rates vary depending on the local taxing jurisdiction. Homeowners occupying their residence as a primary dwelling may qualify for certain property tax reductions.