North Dakota Tax: Rates, Rules, and Requirements

North Dakota’s tax system features a low individual income tax and the absence of a state estate tax. Understanding the specific filing obligations, how income is calculated for tax purposes, and the available credits is important for tax compliance. The state also levies other taxes, such as sales and property taxes, which are part of the financial landscape for its inhabitants.

North Dakota Income Tax Filing Obligations

Determining whether you need to file a North Dakota income tax return hinges on your residency status and gross income. The state defines three categories of taxpayers: full-year residents, part-year residents, and nonresidents. A full-year resident is someone who lives in North Dakota full-time or maintains a home and spends more than 210 days of the tax year in the state.

Part-year residents are individuals who move into or out of North Dakota during the tax year. Nonresidents are those who do not meet the residency criteria but have earned income from North Dakota sources. The primary rule for all categories is that if you are required to file a federal income tax return, you must also file a North Dakota return, provided you meet the state-specific income conditions.

Part-year residents must file if they have gross income from North Dakota sources or earned income from any source while living in the state. Nonresidents are required to file if they have any gross income from North Dakota sources. North Dakota has reciprocity agreements with Minnesota and Montana, which means residents of those states who work in North Dakota are taxed only by their home state on that income.

Calculating North Dakota Taxable Income

The process of determining your North Dakota taxable income begins with your federal adjusted gross income (AGI). This figure, taken from your federal tax return, serves as the starting point for state tax calculations. From there, specific adjustments are made, involving both additions and subtractions to align with North Dakota’s tax laws.

North Dakota law requires certain items to be added back to the federal AGI if they were excluded at the federal level. The state also allows for several subtractions that can lower your taxable income. A significant subtraction is for Social Security benefits, which are not taxed by the state. Another subtraction is for contributions made to the North Dakota College SAVE plan, with limits of up to $5,000 for single filers and $10,000 for married couples filing jointly.

After making these adjustments, you must decide whether to take the state’s standard deduction or to itemize deductions. North Dakota does not allow you to itemize on your state return if you took the standard deduction on your federal return. The state standard deduction amounts are set based on filing status. The final figure is your “North Dakota Taxable Income,” which is used to calculate your final tax liability.

North Dakota Tax Credits and Final Tax Liability

Once your North Dakota taxable income is determined, the next step is to apply the state’s tax rates to calculate your initial tax liability. North Dakota uses a progressive tax system with three tax brackets, meaning the tax rate increases as income rises. The rates range from 0% to 2.5%, and the specific income thresholds for each bracket vary depending on your filing status.

After calculating the initial tax, you may be able to reduce the amount you owe by claiming state-specific tax credits. One of the most widely available is the Primary Residence Credit, which offers homeowners a credit of up to $500 against their property tax obligation. There are no age or income limitations for this credit, but you must own and occupy the home as your primary residence.

Another credit is the Homestead Property Tax Credit, which is available to homeowners aged 65 or older, or those with a permanent and total disability, who meet certain income requirements. To qualify, an individual’s income cannot exceed $70,000. Renters may also be eligible for a partial refund of their rent through the Renter’s Refund program, which has similar age and income qualifications. These credits can substantially lower your final tax bill.

Other Key North Dakota Taxes

Beyond income tax, residents of North Dakota are subject to other state and local taxes. The statewide sales tax rate is 5% on most retail sales of tangible personal property and certain services, though some items like alcohol are taxed at 7%. In addition to the state sales tax, many cities and counties impose their own local sales taxes, which can increase the total tax rate at the point of sale to as high as 8.5%.

Property tax is another tax in North Dakota, but it is administered at the local level by counties. The tax is based on the value of real property, including land and buildings. Property tax rates, often expressed in mills, vary by location and are determined by the budgetary needs of local government entities such as school districts and cities.

Filing and Paying Your North Dakota Taxes

The state offers several methods for filing, with electronic filing being the encouraged option. You can file your state return through the ND Free-File program, which provides free online tax preparation for eligible taxpayers, or by using approved commercial tax software. For those who prefer to file by mail, the primary form for individual income tax is Form ND-1.

The standard deadline for filing your North Dakota income tax return is April 15. If you have a balance due, you can authorize a direct debit from your bank account when you e-file, or pay online through the North Dakota Taxpayer Access Point (ND TAP). If you file a paper return, you can mail a check or money order with the appropriate payment voucher. It is important to submit your payment by the deadline to avoid penalties and interest.