North Dakota dramatically simplified its income tax in 2023: most residents pay 1.95% (income up to $44,725 single) or 2.5% (above $44,725 single). Social Security is fully exempt. North Dakota's income tax burden is among the lowest of any state with an income tax. Despite this, North Dakota has significant out-migration driven by its climate, geographic isolation, limited economic opportunity outside the oil and agriculture sectors, and a shrinking rural population. Moving to another no-tax state (South Dakota, Wyoming, Texas) eliminates even the modest North Dakota tax.
At a glance
Key Facts
North Dakota Income Tax (2023 Reform)
Following HB 1158 (2023): 1.95% on income up to $44,725 (single) / $74,750 (MFJ); 2.5% on income above $44,725 (single) / above $74,750 (MFJ). Single filers with income below $100,000: no income tax (zero rate, effective 2024). Married filers below $100,000 income: no income tax. This means most low-to-middle income North Dakotans pay zero state income tax.
Social Security Exemption
North Dakota fully exempts Social Security income from state income tax — effective for tax year 2021 onwards (HB 1118, 2021). Prior to 2021, ND taxed SS following federal inclusion rules. The full exemption makes ND favorable for retirees receiving SS.
Retirement Income
Beyond Social Security, North Dakota taxes pension income, IRA distributions, and 401(k) withdrawals at the applicable rate (1.95% or 2.5% for most earners). No specific pension exemption beyond the SS exemption and general low rates. At 2.5% top rate, a retiree with $80,000 retirement income pays approximately $1,600/year in ND income tax — modest by any standard.
Property Tax
North Dakota property tax effective rate approximately 0.98% — near the national average. Fargo and Cass County: approximately 1.0–1.2%. Rural agricultural land: rates vary significantly. North Dakota's property tax is unremarkable relative to neighboring states.
No Inheritance Tax
North Dakota has no inheritance tax. It abolished its estate tax in 2003. North Dakotans pay only federal estate tax.
Oil Production Tax
North Dakota's oil and gas extraction taxes (Oil Extraction Tax 5% + Oil Gross Production Tax 5% = 11.5% effective; reduced rates apply in early production and low-price environments) fund a significant portion of state government — meaning North Dakota's income and property taxes are lower than they would otherwise be, partially subsidized by oil revenue.
Introduction
North Dakota has one of the lowest state income tax rates in the US, following major reforms in 2023 that collapsed a five-bracket system into an effective two-rate system. Most North Dakotans pay 1.95% or 2.5% on their income — the difference vs a no-income-tax state like South Dakota is modest in dollar terms (a $70,000 earner saves approximately $1,365/year by crossing into South Dakota). North Dakota's real demographic challenge is out-migration driven by factors that have nothing to do with taxes: harsh winters, a population concentrated in a handful of cities (Fargo, Bismarck, Grand Forks, Minot), and limited professional employment outside energy, agriculture, and healthcare.
Section 01
North Dakota vs South Dakota: Is the Tax Difference Worth It?
North Dakota and South Dakota are often compared — the Dakotas share similar geography, demographics, and economic structure but diverge on income tax.
Income Tax Difference
South Dakota has no state income tax. North Dakota has a 2.5% top rate for income above ~$44,725 (single). For a North Dakotan earning $80,000: ND income tax approximately $1,500–$2,000/year. South Dakota income tax: $0. Annual savings by crossing to South Dakota: approximately $1,500–$2,000 — not a compelling migration driver on its own. For higher incomes: $150,000 earner in ND: approximately $3,300–$3,600 in ND income tax. SD: $0. More meaningful but still not transformative.
Property Tax and Cost of Living
South Dakota property taxes (~1.14% effective) are actually slightly higher than North Dakota's (~0.98%). Costs of living are broadly comparable between Fargo ND and Sioux Falls SD. The income tax difference is real but modest — most Dakota-to-Dakota migration is driven by job opportunities, family, and amenities rather than a $1,500–$2,000 annual tax saving.
Who Actually Benefits from Leaving ND for SD?
High-income ND earners: oil industry executives, medical specialists, or remote workers earning $200,000+ would save $4,500–$5,000/year by establishing SD residency. For this group, the savings justify attention. For median-income earners ($50,000–$70,000), the savings (~$1,000–$1,500/year) are real but rarely the primary migration driver.
Section 02
North Dakota Residency Exit Rules
North Dakota uses standard domicile-based residency:
ND Residency
North Dakota defines a resident as someone domiciled in ND, or a person who maintains a permanent place of abode in ND and is present in ND more than 183 days. To exit: establish the new state's domicile (driver's license, voter registration), update vehicle registration, and change address. North Dakota is not known for aggressive post-departure audits.
Part-Year Returns
File North Dakota Form ND-1 (part-year resident) for your departure year, covering income earned during ND residency. ND-source income after departure (ND rental property, ND business income) remains taxable as non-resident income. Given ND's low rates, the part-year return obligations are financially modest.
North Dakota domicile changes, oil industry income planning, and part-year returns require CPA guidance. TaxHub connects you with state tax specialists.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
North Dakotans moving abroad face state residency termination and US expat filing requirements. Greenback specialises in US expat state tax exit planning.
⚠ Not the cheapest option — best for complex situations and expats who want a dedicated CPA.
Why do people leave North Dakota despite its low taxes?
North Dakota's out-migration is among the higher rates in the Great Plains, driven almost entirely by non-tax factors: (1) Climate — North Dakota winters are extreme, with average January temperatures of -8 to -14°F (-22 to -25°C) in the western Bakken region and persistent wind chill. A significant share of retirements involve moving south to warmer climates; (2) Oil cycle volatility — the Bakken oil boom created significant wage growth (2010–2014), followed by a bust (2015–2016) that drove out-migration of oil sector workers. The cycle has repeated with varying intensity. Oil-dependent workers often relocate to Permian Basin (Texas) for more stable employment opportunities; (3) Rural depopulation — North Dakota's agricultural economy supports fewer and fewer workers as farm consolidation continues. Small towns lose population in a decades-long trend; (4) Limited metropolitan amenities — Fargo (the largest city at ~125,000) offers reasonable amenities but trails comparable Midwestern metros; (5) Young professional out-migration to Minneapolis, Denver, and other regional centers.
Q
Does North Dakota's oil economy create unusually high incomes subject to tax?
Yes — during oil boom periods, North Dakota's Bakken region generates unusually high incomes for oil field workers, drivers, and service sector employees. Oil field workers (roughnecks, equipment operators, truck drivers) routinely earn $80,000–$150,000+ during peak drilling activity. At North Dakota's 2.5% top rate, a $120,000 oil worker pays approximately $3,000/year in ND income tax. In Texas (no income tax, also a major oil state): $0. The income tax differential for oil workers is meaningful — approximately $3,000–$4,000/year for a $120,000–$150,000 Bakken worker. However, oil workers in North Dakota often live in man camps (employer-provided housing) and have limited ability to establish another state's residency while working continuous rotational shifts in ND. Many establish Wyoming or South Dakota residency when possible, particularly if they work on multi-state rotations.
Q
Is North Dakota a good state for retirees on Social Security?
North Dakota is reasonably favorable for retirees given its full Social Security exemption and low income tax rates. A retiree with $30,000 Social Security + $30,000 IRA withdrawals in North Dakota: Social Security fully exempt, IRA withdrawals taxed at 1.95%: ND income tax approximately $585/year. Compare to Minnesota (which taxes SS): approximately $2,500–$3,000/year. Compare to South Dakota (no income tax): $0. North Dakota is far better than Minnesota for retirees but marginally worse than South Dakota, Wyoming, or Texas. The climate is the primary deterrent to retirement in North Dakota — most retirees seek warmer states, and the income tax savings from staying in ND (~$585–$1,500/year) are not sufficient to offset the quality-of-life difference from relocating to a warmer no-tax state.
Disclaimer:This guide provides general tax information for educational purposes only. North Dakota income tax brackets may be subject to further legislative change. This is not tax advice. Consult a CPA for North Dakota-specific tax planning.