South Dakota 2026 Tax Changes — What Residents & Business Owners Must Know
On January 1, 2026, major federal tax changes take effect due to the expiration of key provisions from the Tax Cuts and Jobs Act (TCJA) and updates made under the One Big Beautiful Bill Act (OBBBA).
South Dakota has no state income tax, but residents still pay federal taxes — and the 2026 federal changes will significantly impact nearly every taxpayer.
- W-2 earners across Sioux Falls, Rapid City, Aberdeen, Brookings, Watertown
- Contractors, trades, and agricultural workers
- Small business owners, freelancers, and S-Corps
- Real estate investors and landlords
- Short-term rental hosts
- Families with children
- Retirees drawing taxable income
- Dual-income households
Below is the complete South Dakota–specific overview of the 2026 changes.
Key 2026 Federal Changes Affecting South Dakota
Standard Deduction Shrinks
TCJA temporarily doubled the standard deduction.
OBBBA did not extend this part of the law.
- Single: ~$8,300
- Married Filing Jointly: ~$16,600
- Head of Household: ~$12,400
This increases federal taxable income for most residents.
- federal withholding
- refund amounts
- tax due at filing
- retirement planning
- estimated payments for freelancers
Federal Income Tax Brackets Increase
- 12% → 15%
- 22% → 28%
- 24% → 31%
- dual-income families
- trades and manufacturing workers
- healthcare and education workers
- agricultural and service workers
- households earning $50K–$220K
Higher federal brackets reduce take-home pay and increase the tax cost on variable income.
QBI Deduction Made Permanent Under OBBBA
OBBBA permanently preserved the 20% Qualified Business Income (QBI) deduction — a major benefit for South Dakota’s large self-employed and small-business population.
- LLCs
- S-Corps
- sole proprietors
- contractors and freelancers
- certain rental properties
- new income thresholds
- stricter documentation requirements
- revised SSTB phaseout zones
South Dakota has no state income tax, so QBI benefits apply federally only.
Child Tax Credit Shrinks
- The Child Tax Credit decreases from about $2,000
- To roughly $1,000 per child
- Refundability decreases
Families statewide will see smaller refunds.
Marriage Penalty Returns
TCJA eliminated many marriage penalty issues, but OBBBA leaves this protection to expire.
- reach higher federal brackets sooner
- lose credit eligibility faster
- face higher taxable income
- see increased federal withholding
Dual-income households are hit hardest.
South Dakota–Specific Tax Considerations
1. No State Income Tax — But Federal Changes Still Hit Hard
South Dakota does not tax income, but residents rely entirely on federal tax rules.
- refund amounts
- withholding accuracy
- estimated quarterly payments
- retirement withdrawal planning
- taxable investment income
Residents must prepare for increased federal complexity in 2026.
2. Real Estate Investors & Rental Property Owners Are Affected
- Sioux Falls
- Rapid City
- Brookings
- Spearfish
- Aberdeen
will feel changes affecting:
- capital gains
- depreciation
- rental loss rules
- STR participation requirements
- sale timing
Rising property values in many South Dakota counties increase capital gains exposure.
3. STR Owners Must Prepare for New Federal Rules
- Black Hills region
- Badlands area
- Sioux Falls
- Rapid City
- State park regions
- stricter STR participation rules
- reduced bonus depreciation
- enhanced documentation standards
- updated safe harbor rules
STR operators must strengthen recordkeeping.
4. Agriculture & Rural Households Face Specific Challenges
- farming
- ranching
- livestock operations
- agricultural service businesses
Federal 2026 changes affect:
- equipment depreciation
- land and livestock sales
- farm income averaging
- operating losses and deductions
Agricultural households must plan carefully around the 2025–2026 transition.
5. Retirement Income Planning Matters Even Without State Tax
- IRA withdrawals
- pension income
- 401(k) distributions
- taxable investments
Higher federal brackets increase retirement withdrawal costs.
Who Is Most Affected in South Dakota (2026)
- Dual-income households
- Trades, manufacturing, and service sector workers
- Farmers, ranchers, and agricultural families
- Small business owners
- Contractors and freelancers
- Real estate investors and landlords
- STR hosts
- Families with children
- Retirees with taxable retirement income
What South Dakota Residents Should Do Before December 31, 2025
- Update federal withholding
- Maximize retirement contributions
- Consider Roth conversions
- Review QBI eligibility and business structure
- Prepare STR and rental documentation
- Evaluate capital gains exposure
- Time property or equipment purchases
- Build a multi-year federal tax strategy
South Dakota 2026 Tax FAQ
Does South Dakota have income tax?
No. Only federal taxes apply.
Did OBBBA keep taxes from rising?
OBBBA made QBI permanent but allowed many TCJA provisions to expire.
Are families affected?
Yes. Reduced credits and higher federal taxable income shrink refunds.
Are STR owners impacted?
Yes. Participation and depreciation rules tighten.
Are retirees affected?
Yes. Higher federal brackets increase the tax cost of withdrawals.