Does South Dakota Tax Social Security and Retirement Income?

South Dakota has no income tax, so Social Security is not taxed

South Dakota does not tax Social Security benefits because it does not tax individual income of any kind. The Department of Revenue’s page for individuals states that South Dakota is one of seven states that does not impose a state income tax and refers questions about returns and Forms W-2 to the Internal Revenue Service. There is no state return to file, so the only question is how much of the benefit the federal government taxes. (South Dakota Department of Revenue: Taxes for individuals (no state income tax; inheritance tax repealed effective July 1, 2001; no estate tax))

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

No South Dakota tax on any pension

Private employer pensions, South Dakota Retirement System benefits, federal civil service annuities and military retired pay are all untaxed by the state. The Department of Revenue’s Sales and Use Tax Guide puts it in one sentence: South Dakota does not have a corporate, unitary, or personal income tax. No exclusion worksheet, age test or withholding election is involved. (South Dakota Department of Revenue, Sales and Use Tax Guide, July 2026 (South Dakota taxes and rates))

A pension earned in another state is protected once the retiree is a South Dakota resident. Federal law (4 U.S.C. 114) prohibits a state from imposing income tax on the retirement income of someone who is not its resident or domiciliary, and it defines retirement income to include qualified pension plans, IRAs, 401(k) and 403(b) plans, section 457 plans and military retired pay. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)

IRA and 401(k) withdrawals and Roth conversions carry no state tax

Withdrawals from traditional IRAs and 401(k) plans, required minimum distributions and Roth conversions are taxed only by the federal government for a South Dakota resident. With no personal income tax there is no state withholding on a distribution and no state estimated tax to pay on a large conversion. (South Dakota Department of Revenue, Sales and Use Tax Guide, July 2026 (South Dakota taxes and rates))

Timing matters for people moving in from a state that taxes retirement income. The federal rule looks to residence when the income is received, so a Roth conversion completed while still a resident of the former state is taxed there, and one completed after becoming a South Dakota resident is taxed by neither state. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

No state tax on interest, dividends or capital gains

Interest, ordinary and qualified dividends, and capital gains on securities, real estate or a business are not taxed by South Dakota, whatever the amount and however long the asset was held. With no state income tax of any kind, there is no separate levy on investment income and no return on which to report it. (South Dakota Department of Revenue: Taxes for individuals (no state income tax; inheritance tax repealed effective July 1, 2001; no estate tax))

What the state does tax is spending. The Sales and Use Tax Guide lists the taxes a resident meets instead of an income tax: the 4.2% state sales and use tax, municipal sales tax of 1% to 2%, a 1% municipal gross receipts tax on restaurant meals, lodging, alcohol and admissions, and a 4% motor vehicle excise tax on the purchase of most vehicles. (South Dakota Department of Revenue, Sales and Use Tax Guide, July 2026 (South Dakota taxes and rates))

There are no income tax rates, brackets, standard deduction or personal exemptions for individuals, and nothing to file with the state at tax time. A retiree’s South Dakota taxes are paid at the register, at the county treasurer’s office and when a vehicle is titled. (South Dakota Department of Revenue, Sales and Use Tax Guide, July 2026 (South Dakota taxes and rates))

South Dakota’s age-based relief is all in property and sales tax, and most of it is income-tested. The Department of Revenue lists seven programs: an assessment freeze for the elderly and disabled, a sales or property tax refund for seniors and citizens with disabilities, a reduction of municipal property tax (offered only by Rapid City), a deferral called the homestead exemption for owners 70 or older, an exemption for disabled veterans, and an exemption and a reduction for paraplegics. (South Dakota Department of Revenue: Property tax relief programs)

The assessment freeze is the program with limits high enough to reach middle-income retirees. An owner who is 65 or older, or disabled as defined by the Social Security Act, keeps the home’s assessed value at its base-year level, so later increases in market value are not taxed. For applications in 2026 the household’s prior-year income must be under $56,595 for a one-person household or $66,885 for a household of two or more, and income means federal adjusted gross income plus any other income, including Social Security. (South Dakota Department of Revenue, Freeze on Assessments: Dwellings of Disabled and Senior Citizens (brochure, December 2025))

The refund program is much narrower. An applicant must have been 65 on or before January 1 of the previous year, or disabled, must have lived in South Dakota for the whole of the previous year, and must have income under $17,215 alone or $23,265 for a household. The most a single-person household can receive is $500 and the most a larger household can receive is $1,000. Applications are accepted from May 1 to July 1 and one check is mailed at the beginning of September. (South Dakota Department of Revenue, Tax Refund for Senior and Disabled Citizens: Frequently Asked Questions (2026 refunds))

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from South Dakota's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which is the same wherever they live. The tax bracket calculator and the guide to taxes in retirement cover that side.

Tax Foundation figures drawn from Census data put South Dakota property taxes at 1.00% of owner-occupied home value in 2024, which ranks 18th highest among the states. This is a comparative average: on a $400,000 home it works out to about $4,000 a year, and actual bills vary by county, city and school district. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

A home that is the owner’s principal residence is taxed in a separate class, the owner-occupied single-family dwelling, which carries lower school levies than other property. To get the classification the owner files a certificate with the county director of equalization by March 15 stating that they own and occupy the dwelling as of the assessment date and that it is their principal place of residence. An owner who occupies two or more dwellings during the year must list the others on the certificate. (South Dakota Codified Laws 10-13-40, Eligibility for owner-occupied classification)

The freeze has conditions beyond age and income. The applicant must have owned an owner-occupied home and been a South Dakota resident for five years, unless they received the freeze the year before, and must have lived in the house for at least 200 days of the previous calendar year. A home with a full and true market value of $514,500 or more is not eligible unless it was frozen in an earlier year. The freeze covers the house, garage and lot, or one acre if that is less, and the application goes to the county treasurer every year by April 1. (South Dakota Department of Revenue, Freeze on Assessments: Dwellings of Disabled and Senior Citizens (brochure, December 2025))

The program the state calls the homestead exemption does not reduce the tax; it delays it. An owner who is 70 or older, or the surviving spouse of someone who qualified, who has owned the home for at least three years or been a resident for five, and whose household income is under $18,470 (one person) or $23,087 (two or more), can defer property tax until the home is sold. The deferred tax accrues interest at 4% a year and must be paid when the property is transferred. Joining makes the owner ineligible for a property tax refund under the senior refund program. (South Dakota Department of Revenue, Homestead Exemption Programs: Property Tax Deferral (brochure, December 2025))

Veterans get the largest exemptions. A veteran rated permanently and totally disabled from a service-connected disability, or an unremarried surviving spouse, has $200,000 of the full and true value of an owner-occupied home exempted, on an application to the county director of equalization by November 1 that does not need to be repeated. (South Dakota Department of Revenue, Disabled Veteran Property Tax Exemption Program (brochure, December 2025))

A paraplegic veteran, or a veteran who has lost the use of both lower extremities, whose home is specially designed for wheelchair use pays no property tax on it, with no income limit. Other paraplegic owners receive a reduction on a sliding income scale: 100% with household income under $16,160 for one person or $21,355 for a larger household, tapering to nothing at $20,778 and $25,395. (South Dakota Department of Revenue, Property Tax Exemption for Paraplegic Veterans and Property Tax Reduction for Paraplegics (brochure, December 2025))

One program reduces city property tax for owners who are 65 or older or disabled, and Rapid City is the only city offering it. The owner must have owned and lived in the property for at least five years and be within the city limits. The city tax is cut by 25% to 100% on the same income scale, with no reduction once income reaches $20,778 for one person or $25,395 for a household. (South Dakota Department of Revenue, Reduction from Municipal Tax for the Elderly and Disabled (brochure, December 2025))

The state sales tax is 4.2% of the gross receipts from retail sales of goods. The reduced rate is temporary. The version of the statute that takes effect on July 1, 2027 restores the rate to four and one-half percent, so the 4.2% rate applies through June 30, 2027. (South Dakota Codified Laws 10-45-2, Tax on sale of tangible property (4.2%; 4.5% effective July 1, 2027))

Cities add their own tax. The Sales and Use Tax Guide shows municipal sales and use tax of 1% to 2% on everything the state taxes, and a further 1% municipal gross receipts tax on eating establishments, lodging, alcoholic beverages and admissions where a city has adopted it. A restaurant meal in a city with both therefore carries 7.2%. Vehicles are taxed separately, at a 4% motor vehicle excise tax on the purchase price. (South Dakota Department of Revenue, Sales and Use Tax Guide, July 2026 (South Dakota taxes and rates))

For comparison with other states, the Tax Foundation puts South Dakota’s average local rate at 1.91% and its average combined state and local rate at 6.11% as of January 1, 2026, which ranks 36th among the states. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figures))

Groceries are not exempt. The Department of Revenue’s tax fact on food stamps exempts food bought with food stamp (SNAP) benefits and treats other food sales as taxable at the state rate plus the municipal rate; its worked example applies a combined 6.2%. A household that spends $10,000 a year on groceries in a city with a 2% tax pays about $620 of sales tax on food. (South Dakota Department of Revenue, Tax Facts: Food Stamps and WIC Purchases)

Medicines are treated more gently. Drugs for human use are not subject to sales or use tax when they are prescribed, and insulin is exempt with or without a prescription. Over-the-counter drugs sold without a prescription are taxed at the state and municipal rates. Durable medical equipment, mobility enhancing equipment and medical devices are exempt when prescribed. (South Dakota Department of Revenue, Tax Facts: Health Services, Drugs, and Medical Devices)

South Dakota has no estate tax and no inheritance tax. The Department of Revenue notes that the voters repealed the state inheritance tax effective July 1, 2001 and that there is also no estate tax. Estates of South Dakota residents are left with the federal estate tax alone. (South Dakota Department of Revenue: Taxes for individuals (no state income tax; inheritance tax repealed effective July 1, 2001; no estate tax))

Two South Dakota trust statutes are worth knowing by name. The first is a single sentence: the common-law rule against perpetuities is not in force in the state. Without that rule, a trust governed by South Dakota law is not required to end after a fixed number of years or lives. (South Dakota Codified Laws 43-5-8, Rule against perpetuities not in force)

The second is the chapter on qualified dispositions in trust. Under it, a creditor cannot bring an action to attach property that was the subject of a qualified disposition, or to undo the transfer, unless the transfer was made with intent to defraud that specific creditor. The statute says its provisions control over the state’s fraudulent transfer chapter where the two conflict. (South Dakota Codified Laws 55-16-9, Qualified dispositions in trust: creditors’ actions limited to transfers with intent to defraud)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

A 2025 law, Senate Bill 216, limits assessment growth on homes. For taxes payable in 2027, 2028, 2029, 2030 and 2031, the total assessed value of all owner-occupied single-family dwellings in a county may not rise more than 3% over the prior year, apart from new improvements and reclassified property. The cap applies to the county total, not to each parcel, so an individual home’s value can still move by more. For the same five years the law holds to 3% the extra revenue a taxing district may take on account of improvements and other growth in its tax base, on top of the standing limit of the lesser of 3% or an inflation index. It also set the assessment freeze thresholds at $55,000 and $65,000 of income and $500,000 of value, indexed annually from January 1, 2026. (South Dakota Legislature, 2025 Senate Bill 216 (enrolled): limit on growth in owner-occupied assessed value, taxing district revenue limit, assessment freeze eligibility)

Senate Bill 245, enacted in 2026, creates a homeowner property tax reduction fund that must be used to reduce school general education levies on owner-occupied homes. It was seeded with $55,896,576 on July 1, 2026. From collections on or after August 1, 2027 the fund receives the share of sales and use tax equal to three-tenths of a percentage point, which is the amount by which the state rate rises when the temporary 4.2% rate ends. (South Dakota Legislature, 2026 Senate Bill 245 (enrolled): homeowner property tax reduction fund)

The levy cut is already in statute. For taxes payable in 2027 and later the maximum school general fund levy on an owner-occupied single-family dwelling is $0.669 per $1,000 of taxable valuation, against $4.867 for other non-agricultural property. Levies are applied to valuations set at 85% of market value. (South Dakota Codified Laws 10-12-42, Annual levy for the school district general fund (taxes payable in 2027))

The corresponding maximum for taxes payable in 2026, set by the 2025 Legislature, was $2.518 per $1,000 for an owner-occupied home. On $340,000 of taxable valuation, which is 85% of a $400,000 market value, the difference between the two maximum levies is about $629 a year. (South Dakota Legislature, 2025 Senate Bill 55 (enrolled): school district levies for taxes payable in 2026)

Senate Bill 96, also enacted in 2026, lets a county impose a gross receipts tax of up to one-half percent on everything subject to the state sales tax. All of the proceeds must be credited against the county property tax levy on owner-occupied property, in an equal percentage for every home. A county adopts the tax by ordinance, the ordinance can be referred to a public vote, and from taxes payable in 2028 the property tax bill must show any credit. (South Dakota Legislature, 2026 Senate Bill 96 (enrolled): county option gross receipts tax to reduce owner-occupied property taxes)

No tax measure was on the statewide ballot on November 3, 2026. The four questions were constitutional amendments on Medicaid expansion funding (I), citizenship and voting (J), an unclaimed property trust fund (K) and a 60% approval requirement for future constitutional amendments (L). The Secretary of State’s unofficial results, with all 671 precincts reported, show Amendment L failing by 171,362 votes to 126,175, so constitutional changes, including any on taxes, still pass with a simple majority. Results were not yet certified on the review date. (South Dakota Secretary of State, General Election November 3, 2026: statewide ballot questions (unofficial results))

With no income tax, South Dakota has no income-tax residency test, and its definition of a resident sits in the election code. A resident is an individual who maintains an actual fixed permanent dwelling, establishment or other abode where the individual lives and usually sleeps, for at least thirty consecutive days. A resident remains one during an absence if they intend to return, a person can be a resident of only one place, and someone who moves to another state intending to become a resident there stops being a South Dakota resident. (South Dakota Codified Laws 12-1-4, Resident defined)

Full-time travellers can obtain a South Dakota driver licence without a conventional home address by signing the Department of Public Safety’s residency affidavit before a notary or a licence examiner. It must be accompanied by a receipt, no more than a year old, for a one-night stay at a South Dakota campground, RV park or hotel, and by proof of a personal mailbox service address. The signer declares under penalty of perjury that South Dakota is their state of residence, that they will return after being absent, and that they do not stay, live in or maintain a residence in any other state. (South Dakota Department of Public Safety, State of South Dakota Residency Affidavit (form revised May 2024))

For someone leaving an income-tax state, the live question is whether the former state still treats them as a resident, which South Dakota’s rules do not decide. Once the move is complete, 4 U.S.C. 114 reserves pensions, IRA distributions and 401(k) income to the state of residence, so the former state cannot tax retirement income received as a South Dakota resident. The statute covers retirement income only. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)