State income taxes are often a significant portion of an individual’s annual expenses. Fortunately, there are several strategies for reducing or eliminating this expense. For instance, North Dakota residents can claim a homestead tax credit or renter’s refund. In addition, the state’s flat tax rates are lower than those of many other states. However, these credits are not available to all taxpayers.
In 2023, the North Dakota legislature approved two new state income tax credits that could save hundreds of dollars for some earners. The credit for donations to pregnancy help centers, maternity homes, or child-placing agencies and the credit for adoptions will offset the tax liability of individuals. The legislature also created a simplified optional short form for individuals and a deduction for contributions to the beginning businessman program.
Ordinary income is an individual’s money from their job, small business, or rental property. It doesn’t include dividends, interest, or royalties from investments and does not qualify for preferential tax treatment like long-term capital gains or qualified dividends. In North Dakota, the tax rate for ordinary income is 2.5%.
Unlike the federal government, North Dakota doesn’t have a progressive tax system. Instead, the tax brackets are defined by a simple flat-rate formula. In addition, the state has no estate or inheritance taxes. The income tax exemptions and incentives for small businesses are generous, as is the exemption for certain retirement accounts.
Individual Income Tax Credits
North Dakota offers a variety of tax credits to incentivize specific activities or situations for businesses and individual taxpayers. Here’s a breakdown of some noteworthy North Dakota tax credits:
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Charitable Giving Credit: This credit allows you to deduct 40% of your charitable contributions made to qualified North Dakota non-profit organizations, with a maximum credit of $10,000 per year per taxpayer or $20,000 per year for a couple filing jointly. [Source: https://www.ndcf.net/give/taxcredit.html]
Homestead Tax Credit for Senior Citizens or Disabled Persons: Qualified homeowners or renters who are 65 years or older or who are disabled can receive a credit to reduce their property taxes. An application is required each year. [Source: https://www.bismarcknd.gov/886/Homestead-Tax-Credit]
Primary Residence Credit: A new credit established in 2023, homeowners can apply for a credit of up to $500 against their property taxes. No age or income restrictions exist, but only one credit is available per household. The application period is typically from January 1st to March 31st of each year. [Source: https://www.tax.nd.gov/prc]
North Dakota Corporate Income Tax Credits
Job Creation Incentive Program: This program offers tax credits to businesses that create new jobs in North Dakota. The credit amount and eligibility criteria vary depending on job location, wage levels, and industry. [Source: https://www.tax.nd.gov/tax-exemptions-credits]
Research and Development Credit: Companies engaged in qualified research activities within North Dakota can claim a credit against their corporate income tax liability. [Source: https://www.tax.nd.gov/tax-exemptions-credits]
Value Added Tax Credit: Manufacturers and processors can claim a credit based on the value they add to products during manufacturing. [Source: https://www.tax.nd.gov/tax-exemptions-credits]