New Hampshire does not tax wages, but it does tax interest and dividend income

New Hampshire is one of nine states with no broad income tax on wages and salaries. However, the state does impose a tax on interest income and dividend income at a flat rate of 5 percent. This distinction matters: if you earn money from a job, you owe nothing to New Hampshire. If you earn money from investments or savings accounts, you owe tax on that income to the state.

The interest and dividend tax applies to residents only. If you live in New Hampshire and receive interest from a savings account, CD, or bond, or dividends from stocks or mutual funds, that income is taxable in New Hampshire even if you earned it from an out-of-state source. Non-residents who earn New Hampshire-source income are not subject to this tax.

New Hampshire funds its state budget through property taxes, sales tax (called the "meals and rooms tax"), and other revenue sources. The interest and dividend tax brings in a smaller portion of state revenue than these other taxes do.

Key Takeaways

  • New Hampshire imposes no income tax on wages, salaries, or self-employment income, regardless of how much you earn.
  • Interest income and dividend income are taxed at 5 percent for New Hampshire residents, with limited exceptions for certain retirement accounts.
  • You must report interest and dividend income on your New Hampshire tax return even if you have no wage income.
  • Federal income tax still applies to all residents; New Hampshire's lack of a state income tax does not affect your federal obligations.

What counts as taxable interest and dividend income in New Hampshire

Taxable interest includes earnings from savings accounts, money market accounts, certificates of deposit, bonds, and any other investment that pays you interest. It also includes interest paid on loans you made to others. The tax applies to the full amount of interest earned, not just a portion of it.

Taxable dividends include distributions from stocks, mutual funds, exchange-traded funds, and other investments that pay dividends. Real estate investment trusts (REITs) that pay dividends are also subject to the tax. If you receive a dividend reinvestment (where the dividend is automatically used to buy more shares), that reinvested amount is still taxable.

Capital gains—the profit you make when you sell an investment for more than you paid for it—are not subject to New Hampshire's interest and dividend tax. Capital gains are taxed only at the federal level. This is an important distinction: if you buy a stock for $100 and sell it for $150, the $50 gain is not taxed by New Hampshire.

Exceptions and accounts that are not taxed

Certain retirement accounts are exempt from New Hampshire's interest and dividend tax. Interest and dividends earned inside a traditional IRA, Roth IRA, SEP-IRA, or straightforward IRA are not taxed by New Hampshire while the money remains in the account. The same applies to 401(k) plans, 403(b) plans, and other employer-sponsored retirement accounts. Once you withdraw money from these accounts, the withdrawal itself may be taxable at the federal level, but the growth inside the account escapes New Hampshire tax.

Interest and dividends earned in a 529 college savings plan are also exempt from New Hampshire tax while in the account. Withdrawals used for may have access to education expenses are not taxed by New Hampshire either.

Social Security benefits, pension income, and annuity payments are not subject to New Hampshire's interest and dividend tax. However, if your pension or annuity generates interest or dividends (which is uncommon), those earnings would be taxable.

How to report interest and dividend income on your New Hampshire return

You report interest and dividend income on Form DP-10, New Hampshire's Dividend and Interest Income Tax Return. You file this form with the New Hampshire Department of Revenue Administration if your interest and dividend income exceeds the filing threshold. The threshold changes annually; you should check the current year's threshold on the Department of Revenue Administration website or your tax form instructions.

You will need documentation of your interest and dividend income. Your bank, brokerage, or investment company sends you a Form 1099-INT (for interest) or Form 1099-DIV (for dividends) by January 31 each year. These forms show the income you earned during the prior calendar year. You use these forms to complete your New Hampshire return.

If you have interest or dividend income but fall below the filing threshold, you are not required to file Form DP-10. However, if you are owed a refund, filing the form allows you to claim it.

Planning around the interest and dividend tax

If you live in New Hampshire and earn significant interest or dividend income, you have several options to consider. One approach is to hold investments inside tax-advantaged retirement accounts (IRAs, 401(k)s, 529 plans) where the growth is not subject to New Hampshire tax. This is most effective if you have a long time horizon before you need the money.

Another option is to hold investments that generate capital gains rather than interest or dividends. Since capital gains are not taxed by New Hampshire, a portfolio weighted toward growth stocks or funds may result in lower state tax liability than a portfolio weighted toward dividend-paying stocks or bonds. This trade-off depends on your overall investment strategy and risk tolerance, so it is worth discussing with a financial advisor.

Tax-loss harvesting—selling investments at a loss to offset gains elsewhere in your portfolio—can reduce your taxable income in New Hampshire just as it does at the federal level. If you have a mix of winning and losing investments, you can strategically realize losses to reduce your net taxable gain or interest income.

How New Hampshire's tax compares to neighboring states

Vermont, Massachusetts, and Maine all have broad income taxes that explore to wages and investment income. Connecticut has no income tax on wages but does tax dividends and interest at a rate higher than New Hampshire's. Rhode Island and Massachusetts tax both wages and investment income. If you live near a state border and have flexibility in where you work or invest, the tax difference may be worth factoring into your decision.

However, New Hampshire's property tax rates are among the highest in the nation, and the state also imposes a meals and rooms tax (sales tax on prepared food and hotel stays). When you factor in all state and local taxes, New Hampshire's overall tax burden may not be dramatically lower than a neighboring state's, depending on your income level and spending patterns.

Frequently Asked Questions

Do I have to file a New Hampshire tax return if I only have wage income?

No. If your only income is wages and you have no interest or dividend income, you do not file a New Hampshire state return. New Hampshire has no income tax on wages. You still file a federal return if you meet the federal filing threshold.

What if I moved to New Hampshire mid-year?

You are a New Hampshire resident for tax purposes based on where you lived on December 31 of the tax year. If you moved to New Hampshire on June 1, you are a resident for the full year and must report all interest and dividend income earned during that year, even income earned before you moved. If you moved out of New Hampshire mid-year, you report only income earned while you were a resident.

Are municipal bonds taxed by New Hampshire?

Interest from U.S. Treasury bonds and most municipal bonds is exempt from federal income tax. New Hampshire does not tax interest from U.S. Treasury securities. Interest from municipal bonds issued by New Hampshire municipalities is also exempt. Interest from out-of-state municipal bonds is taxable by New Hampshire.

Can I deduct investment losses against my interest and dividend income?

New Hampshire does not allow you to deduct investment losses against your interest and dividend income on the state return. You report gross interest and dividends, not net income. However, you can deduct capital losses against capital gains on your federal return, which may reduce your overall federal tax liability.

What happens if I do not report interest and dividend income?

The Department of Revenue Administration receives copies of all 1099-INT and 1099-DIV forms issued to New Hampshire residents. If you do not report income that appears on these forms, the department may contact you. Penalties and interest explore to unpaid taxes. If you believe you owe tax, filing an amended return is generally better than waiting for the department to contact you.