South Dakota Military Retirement Taxes 2026: Complete Tax Guide for Veterans

Why South Dakota Is a Hidden Gem for Military Retirement

South Dakota is one of only 9 states with no state income tax, making it exceptionally tax-friendly for military retirees. Your entire military pension, VA disability, Social Security, and all other income is free from state income tax. Combined with low property taxes, property tax relief for disabled veterans, and a below-average cost of living, South Dakota offers outstanding value for retirees.

Beyond taxes, South Dakota provides safe communities (lowest crime rate in nation), friendly people, beautiful landscapes (Black Hills, Badlands), excellent outdoor recreation (hunting, fishing, hiking), low population density, and no state estate or inheritance tax. The state's fiscal responsibility and pro-business environment ensure long-term tax stability.

2026 South Dakota Tax Breakdown

State Income Tax

🎉 ZERO State Income Tax!

South Dakota does not have a state income tax. This applies to ALL income sources including military retirement pay, VA disability, Social Security, pensions, wages, investment income, and business income. You only pay federal taxes.

Property Tax Relief for Veterans (2026)

Disability Rating	Property Tax Benefit	Requirements
100% Disabled	$150,000 assessed value exemption	100% service-connected disability
70%+ Disabled	Partial reduction available	70%+ service-connected
Paraplegic Veterans	100% property tax exemption	Paraplegic from service

Real Example: Tax Savings in South Dakota (2026)

Example: E-7 Retired After 20 Years

• Military retirement pay: $2,800/month ($33,600/year)
• VA disability (70%): $1,916/month ($22,992/year)
• Part-time civilian job: $25,000/year
• Total annual income: $81,592

South Dakota

No state tax on any income

State tax: $0

Minnesota (7.05% bracket)

Taxes most income

State tax: ~$2,800

Annual South Dakota Savings: $2,800+

Over 20 years: $56,000+ saved

Cost of Living in South Dakota (2026)

South Dakota's cost of living is 5-10% below the national average:

📍 Housing Costs

• Median home price: $265,000
• Rent (2BR): ~$950/month
• Property tax rate: 1.2% (low)
• Housing: Below national average

🛒 Living Expenses

• Groceries: Below average
• Healthcare: Near average
• Utilities: Below average
• Gas: Slightly below average

Military Presence in South Dakota

🎖️ Ellsworth Air Force Base (Rapid City)

• Home of the B-1B Lancer - 28th Bomb Wing
• Personnel: 4,000+ active duty and civilians
• Economic Impact: $400+ million annually
• Facilities: Full commissary, exchange, medical, fitness
• Future: Selected for B-21 Raider bomber

🎖️ South Dakota National Guard

Active Army and Air National Guard presence with training facilities statewide. Strong military heritage and veteran community.

Best Cities for Military Retirees in South Dakota

🏔️ Rapid City

Why: Ellsworth AFB access, Black Hills beauty, tourism economy, outdoor recreation, growing tech sector
Population: 75,000
Housing: $280,000 median
Best for: Military retirees, outdoor enthusiasts

🏙️ Sioux Falls

Why: Largest city, strong economy, excellent healthcare, no income tax draws businesses, low unemployment
Population: 195,000
Housing: $275,000 median
Best for: Job opportunities, urban amenities with Midwest feel

✈️ Box Elder

Why: Adjacent to Ellsworth AFB, military community, affordable, family-friendly
Population: 10,000
Housing: $250,000 median
Best for: Air Force retirees wanting base proximity

🏛️ Pierre (Capital)

Why: State capital, stable government jobs, small-town feel, Missouri River recreation
Population: 14,000
Housing: $230,000 median
Best for: Quiet retirement, fishing/hunting

Pros & Cons of Retiring in South Dakota

✅ PROS

✓ NO state income tax on anything
✓ Property tax relief for disabled vets
✓ Low cost of living (5-10% below average)
✓ Lowest crime rate in the nation
✓ No estate/inheritance tax
✓ Low property taxes overall
✓ Ellsworth AFB - full facilities
✓ Beautiful landscapes - Black Hills, Badlands
✓ Excellent hunting/fishing
✓ Low population density - peace & quiet
✓ Friendly communities
✓ Fiscal responsibility - stable taxes

❌ CONS

✗ Harsh winters - very cold (-20°F common)
✗ Limited VA facilities - closest in Sioux Falls, Hot Springs
✗ Rural state - long distances
✗ Limited job market outside major cities
✗ Extreme weather - blizzards, tornadoes
✗ Limited cultural amenities vs. urban states
✗ Small population - isolation for some

VA Healthcare in South Dakota

🏥 VA Facilities

• Hot Springs VA Medical Center - Full medical care, long-term care
• Sioux Falls VA Health Care System - Primary care, specialty services
• Multiple CBOCs - Rapid City, Pierre, Fort Meade, Eagle Butte
• Telehealth: Available statewide for remote consultations

Frequently Asked Questions (FAQs)

Does South Dakota tax military retirement pay?

No. South Dakota has NO state income tax, which means your military retirement pay is NOT taxed at the state level. This includes all military pensions from active duty, reserves, or National Guard. You'll only pay federal income tax. South Dakota is one of only 9 states with no income tax.

What property tax relief do veterans get in South Dakota?

South Dakota offers property tax relief for disabled veterans: 100% disabled veterans receive a $150,000 assessed value exemption from property taxes. Veterans with at least 70% service-connected disability can receive significant property tax reduction. Paraplegic veterans receive full property tax exemption. South Dakota also has low overall property tax rates compared to neighboring states.

Is South Dakota a good state for military retirees?

Yes, South Dakota is excellent for military retirees seeking tax advantages and low cost of living. With no state income tax, low property taxes, property tax relief for disabled veterans, affordable housing, and no tax on Social Security or pensions, South Dakota offers exceptional value. The state has low crime, friendly communities, and outdoor recreation opportunities. Main considerations are cold winters and limited VA facilities.

Does South Dakota tax Social Security benefits?

No. South Dakota has no state income tax, so Social Security benefits are completely tax-free at the state level. This is a major advantage for retirees with multiple income sources.

What is the sales tax rate in South Dakota?

South Dakota has a 4.5% state sales tax, which is relatively low. Local jurisdictions can add up to 2% additional sales tax, so total rates typically range from 4.5% to 6.5%. This is offset by having no state income tax.

Can military retirees access Ellsworth AFB facilities?

Yes. Military retirees can access all facilities at Ellsworth Air Force Base including the commissary, exchange, medical/dental clinics, fitness center, MWR facilities, and more. Ellsworth provides substantial savings and quality of life benefits for retirees in the Rapid City area.

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🎯 Quick Summary: South Dakota (2026)