An Overview of New Hampshire State Taxes
New Hampshire is commonly referred to as one of the most friendly states for retirees due to the many tax advantages it provides to senior citizens. If you are a newcomer to the state, there are a number of unique tax considerations that are important to understand.
Learn more about the taxes the state of New Hampshire imposes on its residents as well as tips for filing your taxes in the Granite State.
Table of Contents
New Hampshire Income Tax
New Hampshire does not impose an income tax on the taxpayer’s personal wages. However, the state does tax income from dividends and interest.
Interest and Dividends Tax
Note that while New Hampshire does not tax an individual’s earned income, there is a 5% tax on income derived from dividends and interest. However, in 2018 the state Senate passed SB 404, a plan that will ultimately phase out the state’s tax on interest and dividends.
New Hampshire’s income tax plan going forward is to phase out the tax by 1% each year starting in 2020. Because the current tax on dividends and investments is 5%, the tax will be fully eliminated by 2025. The goal of this bill is not only to make New Hampshire a state that truly doesn’t have an income tax, but to help those burdened by the tax and prevent them from moving out of the state.
According to the New Hampshire Department of Revenue, the following are taxed:
- “Banks, credit unions, building and loan associations;”
- Bonds, and any interest from debts;
- Income tax refunds;
- “Original issue discount (OID) interest on your 1099;”
- “Annual calculated interest from zero-coupon bonds;”
- “Annuities (except as part of an employee benefit plan);”
- Certain U.S. obligations;
- “Deemed interest;”
- “Municipal bonds (except New Hampshire);”
- “Repurchase agreements;”
- “Personal mortgages and loans;”
- “Personal life insurance;”
However, there is no tax imposed on interest and dividends from the following, according to the New Hampshire Department of Revenue:
- “Capital gains;”
- “Return of capital;”
- “Qualified funds invested in college tuition savings plans;”
- “Mutual funds that invest solely in New Hampshire tax-exempt instruments;”
- “1099 PATR (Patronage Dividends);”
- “Sale or exchange of transferable shares;”
- “Tax-deferred investment plans;”
- “Keogh Plans;”
- “Individual Retirement Accounts;”
- “Liquidating dividends;”
- “Stock dividends paid in new stock;”
Does New Hampshire Have a Sales Tax?
New Hampshire does not have a sales tax. This, in addition to the lack of income tax imposed on New Hampshire residents, is problematic when it comes to generating revenue. In other words, the lack of these two taxes means that the government has to rely on other sources of revenue to keep the infrastructure running smoothly.
To compensate for this lack of revenue from sales tax, steep state and local property taxes in New Hampshire pick up the slack.
New Hampshire Property Taxes
New Hampshire has the third-highest property tax in the nation, just behind New Jersey and Connecticut.
Property tax bills are issued by the municipality where the property is located. The municipality assesses the full market value of the land and structure to determine the property tax amount.
Local tax authorities adjust that rate to reflect the changes made to the property, which can either increase or decrease the value. This is referred to as the equalized tax rate (ETR) and is what reflects the true market value of the property across the board. Taxes can be issued annually, semi-annually, or quarterly.
Low and Moderate Income Homeowners Property Tax Relief
To lessen the economic burden of high property taxes on at-risk taxpayers in the state of New Hampshire, the Low and Moderate Income Homeowners Property Tax Relief program was set in place.
Taxpayers who are eligible for this program must meet the following requirements:
- File single with an adjusted gross income of $20,000 or less, or married with an adjusted gross income of $40,000 or less.
- Own a homestead that is subject to the State Education Property Tax.
- Have lived in the home on April 1 of the year the claim is filed.
Applications must be filled out and submitted during the filing period, which is after May 1 but no later than June 30.
New Hampshire Estate Taxes
Generally speaking, New Hampshire does not have an estate or inheritance tax. An estate tax is levied on someone who owned property and has died, while an inheritance tax affects someone who inherits property from someone who has died. The state’s tax on legacy and succession was repealed in 2003, and the tax no longer applied to deaths that occurred after January 1 of that year.
There are exceptions to the rule, however. For example, if someone is living in another state and they receive an estate, they could be responsible for paying that state’s taxes as related to inheritance.
Tips for Filing Taxes in New Hampshire
A $1,200 exemption is available for taxpayers who are blind and/or disabled and unable to work. That same exemption also applies to residents age 65 or older.
Gambling winnings are also taxed at 10% and must be claimed on your tax return. If you own a business in the state of New Hampshire, a Business Profit Tax of 8.5% is imposed if you have earned more than $50,000 in gross business income. If you have more than $150,000 in gross receipts, the Business Enterprise Tax will also apply.
To prepare to file your taxes in New Hampshire, have all of your W-2s, 1099s, and other earnings reports ready. If you feel that you aren’t qualified to file taxes on your own, you may want to consult the expertise of a financial adviser.
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This post was updated January 28, 2020. It was originally published January 9, 2020.