North Dakota Income Tax Calculator

North Dakota Income Tax: How Bakken Oil Made a 2.5% Top Rate Possible

Most states run their tax systems from a perpetual scarcity position — revenues fluctuate with economic cycles, budget pressures accumulate, and tax rates reflect the chronic gap between what governments spend and what they collect. North Dakota operates from a fundamentally different position. The Bakken Shale formation, which sits beneath the western portion of the state in Williston Basin, produces more than one million barrels of oil per day. Under a 1976 constitutional amendment and subsequent legislation, the state deposits 30% of its oil and gas production and extraction tax revenues into the Legacy Fund — a sovereign wealth account that had accumulated more than $10 billion by 2025. The existence of that fund means North Dakota can afford income tax rates that most states cannot sustain. The 2023 HB 1158 reform — which collapsed five brackets into three and created a zero-rate bracket covering the first $55,975 of taxable income for single filers — was partly financed by the assumption that Legacy Fund investment returns and continued oil extraction revenues would buffer the resulting revenue reduction. This is the fiscal context that most income tax comparisons miss: North Dakota’s competitive rates are not the result of spending less than other states, but of having a revenue stream that most states simply do not possess.

The Zero Bracket: North Dakota’s Most Underrated Tax Feature

The 2023 reform’s most significant practical effect for working North Dakotans was not the reduction of the top rate from 2.9% to 2.5% — it was the creation of a meaningful zero-rate bracket. For single filers, the first $55,975 of North Dakota taxable income is taxed at exactly 0%. After the $15,000 standard deduction, that means a single filer earning up to approximately $70,975 in gross wages owes North Dakota exactly $0 in state income tax. A household earner at $65,000, $68,000, or $70,000 falls entirely within the zero bracket after their standard deduction — zero state income tax on their entire earnings. For married filing jointly filers, the zero bracket covers $55,488 of taxable income (after the $30,000 standard deduction, this corresponds to roughly $85,488 in combined gross income). These zero-bracket thresholds are indexed for inflation and will adjust slightly each year. The practical significance is that North Dakota’s income tax is effectively invisible for the median household — the Tax Foundation estimated the median North Dakota household income at approximately $72,000, meaning a single-earner median household would owe zero or near-zero ND state income tax after accounting for the standard deduction and zero bracket.

Social Security Exempt, All Military Pay Deductible: North Dakota for Retirees and Veterans

Two legislative changes in 2021 and 2023 transformed North Dakota’s retirement income landscape. In November 2021, the state legislature’s Special Session passed Senate Bill 2351, removing the adjusted gross income threshold that had previously limited the Social Security exemption to lower-income taxpayers. As of tax year 2021, all Social Security benefits are completely exempt from North Dakota income tax regardless of the recipient’s total income — no phase-out, no means test, no AGI threshold. A retired North Dakotan with $100,000 in Social Security income owes the state $0 on that amount. The 2023 reform broadened the military pay deduction to cover all military pay — not just active duty mobilization orders, but also National Guard pay, Reserve member compensation, bonuses, education assistance, and military retirement income. Veterans receiving military retirement pensions can deduct the full amount from North Dakota taxable income. These two exemptions — combined with the zero bracket and low rates — mean that a retired military veteran in North Dakota receiving Social Security and a military pension will often owe zero in state income tax even on substantial combined income.

The 40% Long-Term Capital Gains Exclusion: What Investors Pay in ND

North Dakota is one of a small group of states that explicitly reduce the state taxable portion of long-term capital gains. The North Dakota 40% exclusion means that only 60% of a qualifying long-term capital gain — assets held more than one year — is included in North Dakota taxable income. The remaining 40% is simply excluded. At North Dakota’s maximum marginal rate of 2.5%, a $200,000 long-term capital gain results in a maximum North Dakota capital gains tax of $3,000 ($200,000 × 60% × 2.5%). For comparison, Minnesota taxes capital gains as ordinary income at rates up to 9.85% — a Minnesota resident with the same $200,000 long-term gain would pay up to $19,700. For investors in the Bakken oil patch who receive royalty income and capital gains from energy sector investments, North Dakota’s 40% exclusion combined with its low rates represents a material advantage. Short-term capital gains do not qualify for the 40% exclusion and are taxed as ordinary income at the standard bracket rates.

Low-Competition Tax Planning Opportunities Unique to North Dakota

North Dakota’s College SAVE Plan allows a deduction of up to $5,000 for single filers ($10,000 for married filing jointly) in annual contributions to a qualified 529 account — one of the higher state 529 deduction limits in the country relative to the underlying tax rates. At North Dakota’s 1.95% marginal rate, a $5,000 contribution saves $97.50 in state tax — small in dollar terms, but the federal tax benefit from the same contribution at higher brackets makes the combined saving meaningful. The state also allows oil and gas investment deductions for those with qualifying working interests, making North Dakota one of the few states where oil patch investment expenses are deductible at both the federal and state level simultaneously. Peace officers with qualifying disabilities who have at least 20 years of combined service may claim a full deduction for their retirement benefits under the 2023 reform. These niche deductions are largely invisible to national tax guides and represent genuine planning opportunities for qualifying North Dakota residents.