North Dakota — Personal Income Tax

North Dakota imposes a personal income tax on every resident and nonresident individual, estate, and trust for each taxable year upon income earned or received in that taxable year. Residents must file if they are required to file a federal income tax return or receive income from any source. Nonresidents must file if they are required to file a federal return and receive income from a North Dakota source, such as wages, rents, royalties, or business income earned in the state. Part-year residents who move into or out of North Dakota and change legal residence must report income earned during their period of residency plus any North Dakota-source income.

The tax calculation begins with federal taxable income as computed under the Internal Revenue Code of 1986, as amended, with specific adjustments provided by North Dakota law.

Source: N.D. Cent. Code § 57-38-30.3; North Dakota Office of State Tax Commissioner – Individual Income Tax

North Dakota imposes a progressive income tax with three marginal rates: 0%, 1.95%, and 2.50%. The tax is calculated by multiplying North Dakota taxable income by the applicable rate schedule corresponding to the taxpayer's filing status. Separate rate schedules apply for single filers, married filing jointly, head of household, married filing separately, and qualifying surviving spouses. The tax commissioner adjusts the income bracket thresholds annually for inflation.

Source: N.D. Cent. Code § 57-38-30.3; North Dakota Office of State Tax Commissioner – Individual Income Tax History

North Dakota defines "resident" for personal income tax purposes under two alternative tests: domicile or the statutory seven-month rule. Under N.D. Cent. Code § 57-38-01(11), a natural person is a resident if either (1) the person is domiciled in North Dakota, or (2) the person maintains a permanent place of abode in the state and spends more than seven months (in the aggregate) of the income year within the state.

Domicile test. Domicile means a person's permanent home to which the person always intends to return when absent. Legal residence is based on intent and actions. If a person has more than one physical place of abode, only one may be the person's legal residence. A domicile once established is presumed to continue until the taxpayer demonstrates it has changed. The North Dakota Office of State Tax Commissioner follows this common-law understanding in its published guidance.

Statutory seven-month rule. A person not domiciled in North Dakota nevertheless becomes a resident if two conditions are met: (1) the person maintains a permanent place of abode in the state, and (2) the person spends in the aggregate more than seven months (that is, more than 210 days) of the income year in North Dakota. This rule can make a person a resident of North Dakota for income tax purposes even though domiciled elsewhere. "Permanent place of abode" is not defined in the statute but is understood to mean a dwelling that is maintained on an ongoing basis, as distinct from temporary or seasonal lodging.

Military exception. A full-time active duty member of the armed forces assigned to a military installation in North Dakota, or the member's spouse, is not treated as a resident of North Dakota solely by reason of being stationed in the state. This statutory exception appears in the same definitional subsection and prevents military service alone from creating North Dakota residency under either prong.

Practical effect. Residents are taxed on all income regardless of source. Nonresidents are taxed only on income from North Dakota sources. Part-year residents who move into or out of North Dakota during the tax year report income earned while a resident plus any North Dakota-source income earned while a nonresident. The residency determination made under § 57-38-01(11) controls which filing category and sourcing rules apply.

Source: N.D. Cent. Code § 57-38-01(11); 2022 North Dakota Individual Income Tax Booklet, Office of State Tax Commissioner

North Dakota individual income tax returns are due on or before April 15 following the close of the calendar year. Taxpayers may obtain an extension of time to file by receiving a federal extension (federal Form 4868) or by filing a North Dakota extension request. If a federal extension is granted, North Dakota automatically honors it and no separate state extension form is required. Extensions move the filing deadline to October 15, but any tax owed must still be paid by the original April 15 deadline to avoid interest charges at one percent per month.

Source: North Dakota Office of State Tax Commissioner – Individual Income Tax

North Dakota requires every employer making payment of wages to employees to deduct and withhold state income tax if those wages are subject to federal income tax withholding. An employer must register for a withholding account with the Office of State Tax Commissioner if both of the following apply: the employer has one or more employees working in North Dakota, and the wages are subject to federal income tax withholding. Employers withhold a percentage of the federal income tax amount as determined by the tax commissioner, which approximates the state income tax due. The tax commissioner may adopt tax tables that, when followed, will as closely as possible pay the income tax liability imposed under North Dakota law.

Source: N.D. Cent. Code § 57-38-59; North Dakota Office of State Tax Commissioner – Income Tax Withholding

North Dakota allows married couples filing a joint return a nonrefundable income tax credit designed to reduce the "marriage penalty" that can occur when two wage earners face a higher combined tax liability filing jointly than they would as two single individuals. The credit is capped at $300 per couple and is adjusted annually for inflation by the tax commissioner at the same time and rate that adjustments are made to the income tax rate schedules under N.D. Cent. Code § 57-38-30.3(1)(g).

Statutory framework. The marriage penalty credit is codified at N.D. Cent. Code § 57-38-01.28. It is available to married couples filing a joint return under § 57-38-30.3 when both spouses have "qualified income" and their joint North Dakota taxable income and the qualified income of the spouse with the lower qualified income exceed certain threshold amounts embedded in the credit formula. The credit is nonrefundable and reduces North Dakota income tax liability dollar-for-dollar up to the inflation-adjusted maximum.

Qualified income definition. Under § 57-38-01.28(4)(a), "qualified income" means the sum of (1) earned income as defined in Internal Revenue Code section 32(c)(2)—which includes wages, salaries, tips, other employee compensation, and net earnings from self-employment—and (2) certain annuity, pension, and retirement income, to the extent each is included in North Dakota taxable income. The statute cross-references the federal definition of earned income and incorporates additional retirement-related income streams. Both spouses must have qualified income for the credit to apply.

Credit calculation. The credit formula compares the couple's actual tax under the married-filing-jointly rate schedule against a hypothetical two-step computation under the single-filer rate schedule. Specifically, the credit equals the difference between (a) the tax on the couple's joint North Dakota taxable income under the married-filing-jointly rates in § 57-38-30.3(1)(b), and (b) the sum of (i) the tax under the single-filer rates in § 57-38-30.3(1)(a) on the qualified income of the lesser-earning spouse, plus (ii) the tax under the single-filer rates on the couple's joint North Dakota taxable income minus the qualified income of the lesser-earning spouse. If this difference is positive and does not exceed the inflation-adjusted cap, it is the allowed credit. If the calculation yields zero or a negative number, no credit is available. The North Dakota Office of State Tax Commissioner publishes a Marriage Penalty Credit Worksheet annually in the instructions to Form ND-1, which sets forth the inflation-adjusted maximum credit and threshold amounts for the applicable tax year.

Nonresident and part-year resident adjustment. For nonresident or part-year resident couples, § 57-38-01.28(3) requires that the credit be adjusted based on the percentage of income attributable to North Dakota, calculated under § 57-38-30.3(1)(f). This apportionment ensures that the credit reflects only the North Dakota portion of the couple's income and prevents the credit from offsetting tax on income not sourced to the state.

Inflation indexing. The maximum credit amount and the threshold amounts within the credit formula are indexed for inflation annually. Section 57-38-01.28(1) directs the tax commissioner to adjust the maximum credit "each taxable year at the time and rate adjustments are made to rate schedules under subdivision g of subsection 1 of section 57-38-30.3." Because of this annual indexing, both the maximum credit and the income thresholds triggering eligibility change each year. The current maximum and thresholds for a given tax year are published in the instructions to Form ND-1.

Where the credit is claimed. The credit is claimed on the individual income tax return and reduces the taxpayer's North Dakota income tax liability after the application of tax rate schedules but before other credits. Section 57-38-30.3 lists the marriage penalty credit among the credits allowable against individual income tax.

Source: N.D. Cent. Code § 57-38-01.28; N.D. Cent. Code § 57-38-30.3; North Dakota Office of State Tax Commissioner – Marriage Credit