New Hampshire is typically known as a low-tax state. Although it has higher-than-average property taxes, it does not tax income earned from work and does not have a sales tax. However, New Hampshire does have a lesser-known tax on income—specifically, an interest and dividends tax. If you have lived in New Hampshire your whole life and have not heard of this tax, you are not alone. This tax does not apply to everyone, but with short-term interest rates increasing, it applies to more and more people living in the Granite State.
What is an interest and dividend tax?
This New Hampshire tax is only applicable to a certain type of income. Any wages that you earn from work or from your own business do not apply and are excluded from this tax. The tax is only on interest (such as money earned from a savings accounts) and dividends (income distributed to people who own shares of stock, mutual funds, or exchange traded funds). The dividend portion of this tax only applies to dividends earned in a taxable investment account, which are investments outside of your IRA or 401(k). Therefore, any dividends earned in a 401(k) or an IRA are not counted for this tax. Also, the tax does not currently apply to capital gains (selling an investment for more than what you bought it for).
I’ve never paid this tax before. Should I have been?
Unless you’re still doing taxes by hand, you probably have not missed paying the tax because it doesn’t apply to many New Hampshire taxpayers. There is an exemption of the first $2,400 for an individual, or $4,800 for joint filers. There is also an increased exemption for those age 65 and older, if you’re blind, or if you’re not yet 65 but are unable to work.1 So, if you haven’t been paying the tax, it is likely that you have been below the taxable threshold. Since your investment income gets reported on a 1099 tax document, if you use a CPA, TurboTax, or another tax prep software, they should catch whether you need to file a New Hampshire return based on what is reported on your federal return.
How much is the tax?
The tax is 4% on the amount of dividends and interest above the exemption amount for 2023 and 3% for taxable interest and dividends in 2024. The tax is eliminated in 2025. Therefore, if you’re a joint filer in 2023 and earned $5,000 of dividends and interest, you would pay tax on $200 ($5,000 – $4,800), which comes to $8 of total tax ($200 * 4%).
Will I have to pay the tax in the future?
The New Hampshire interest and dividend tax has been repealed for periods ending on or after December 31, 2025. Whether you’re required to pay the tax or not before then depends on how much money you have saved in a bank and invested outside of retirement accounts. If you have a modest amount in the bank and limited investments inside a taxable investment account, you likely won’t ever have to pay the tax. However, with interest rates higher than they have been in years, and if you’re adding to your investments outside of a retirement plan, it is certainly possible this tax will apply to you in 2023 or 2024.
Believe it or not, tax planning is important not just for those living in Massachusetts; it can apply to New Hampshire residents too.
If you need assistance with your tax planning or retirement planning in general, please reach out to our team.
Disclaimer/Author(s) Bio: This is not to be considered investment, tax, or financial advice. Please review your personal situation with your tax and/or financial advisor. Milestone Financial Planning, LLC, (Milestone), a fee-only financial planning firm and registered investment advisor in Bedford, NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our client’s interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors. Advisory services are only offered to clients or prospective clients where Milestone and its representatives are properly licensed or exempt from licensure.
