South Dakota Income Tax Guide for Paystubs

South Dakota is one of nine states with no state income tax. If you work in South Dakota, you won't see any state income tax withholding on your paystub, leaving only federal income tax and FICA as your paycheck deductions.

No State Income Tax

South Dakota does not impose a personal income tax on wages, salaries, or other earned income. This means:

• No state income tax line on your paystub
• No state tax return to file for wages
• More take-home pay compared to states with income tax
• No state-level payroll deductions beyond federal requirements

What You Will See on Your Paystub

While South Dakota has no state income tax, your paystub will still show federal income tax withholding and FICA deductions:

South Dakota paystubs are among the simplest in the nation. Unlike Washington (which has WA Cares and PFML deductions) or New Jersey (which has SDI, FLI, and SUI), South Dakota has no state-level payroll deductions for employees.

Payroll Taxes: What Employers Pay

While employees see no state deductions, employers in South Dakota do pay state unemployment insurance (SUI):

State Unemployment Insurance (SUI)

• Paid by: Employers only — no employee contribution
• Rate: 0% to 9.5% depending on the employer's experience rating
• New employer rate: 1.2%
• Wage base: First $15,000 per employee per year
• Employee impact: None — this tax does not appear on your paystub

No Other State Payroll Taxes

South Dakota does not have:

• State disability insurance (SDI)
• Paid family leave (PFL) program
• Local income taxes
• Any other mandatory employee payroll deductions at the state level

Other South Dakota Taxes

South Dakota generates revenue through other taxes instead of income tax:

• Sales Tax: 4.5% state rate, plus local taxes up to 2% (6.5% max in some areas)
• Property Tax: Varies by county, averaging around 1.2% of assessed value
• No corporate income tax: Attractive for business owners and entrepreneurs

Sioux Falls Workers

Sioux Falls is South Dakota's largest city and economic center:

• Financial services hub: Citibank, Wells Fargo, and numerous credit card companies operate major facilities
• Healthcare: Sanford Health and Avera Health (two of the largest employers in the state)
• Growing technology sector and data centers
• Low unemployment rate and strong job market
• No local income tax

Rapid City Workers

Rapid City is the second-largest city in South Dakota and the gateway to the Black Hills:

• Tourism industry: Mount Rushmore, Badlands National Park, Crazy Horse Memorial
• Ellsworth Air Force Base (see military section below)
• Healthcare (Monument Health)
• Mining and natural resources
• No local income tax

Agriculture and Ranching

Agriculture is a foundational industry in South Dakota, employing a significant portion of the workforce directly and indirectly:

• South Dakota is a top producer of corn, soybeans, sunflowers, and wheat
• Cattle ranching is the state's largest agricultural sector by revenue
• Meatpacking and food processing plants (particularly in Sioux Falls and surrounding areas)
• Farm and ranch workers benefit from no state income tax on all wages, including seasonal and overtime pay
• Agricultural equipment manufacturing and related supply chain employment

Retirement Income

South Dakota does not tax any form of retirement income:

• Social Security benefits: Not taxed
• Pensions (public and private): Not taxed
• 401(k) and 403(b) distributions: Not taxed
• IRA withdrawals: Not taxed
• Military retirement pay: Not taxed

South Dakota's lack of income tax, combined with a relatively low cost of living, makes it an increasingly popular destination for retirees. The state has no estate or inheritance tax either.

Military Personnel

South Dakota's primary military installation is Ellsworth Air Force Base, located near Rapid City:

• Home of the 28th Bomb Wing (B-1B Lancer bomber)
• Selected to host the B-21 Raider next-generation bomber
• One of the largest employers in the Rapid City area
• South Dakota National Guard units throughout the state

Military tax considerations in South Dakota:

• Active duty pay is not subject to state income tax (because South Dakota has none)
• Military retirement pay is not taxed at the state level
• Military spouses earn income in South Dakota with no state income tax withholding
• The upcoming B-21 Raider mission is expected to bring additional military and civilian jobs to the region

Working Remotely

South Dakota's lack of income tax makes it attractive for remote workers:

• You won't owe South Dakota income tax (there isn't one)
• You may still owe tax to the state where your employer is located
• Some states have "convenience of the employer" rules that could affect you

South Dakota vs. Neighboring States

Comparing Take-Home Pay

Here is how annual state income tax compares for a single filer at different salary levels:

Relocating to South Dakota

Many people relocate to South Dakota for tax advantages:

• Establish residency by living in the state for at least 183 days
• Update your driver's license and vehicle registration
• Register to vote in South Dakota
• Use a South Dakota address for tax purposes

Key Takeaways

1. South Dakota has no state income tax, permanently prohibited by a 2024 constitutional amendment
2. Your paystub shows only federal income tax, Social Security, and Medicare — no state deductions
3. Employers pay state unemployment insurance; employees contribute nothing at the state level
4. No city or local income taxes anywhere in the state
5. All retirement income (Social Security, pensions, 401(k), IRA) is free from state tax
6. Agriculture and financial services are key industries, both benefiting from the zero state income tax
7. Ellsworth Air Force Base near Rapid City is the state's primary military installation, with the B-21 Raider mission expected to expand employment

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