New Hampshire just repealed its last income-side tax. Here's what that means for retirees.

For most of its modern history, New Hampshire has run a deliberate experiment: be the only state in the Northeast without a broad-based income tax or a general sales tax, and fund the difference with property taxes and a handful of targeted excise levies. The one asterisk on that story was the Interest & Dividends tax — a 5% levy on investment income above modest exemptions, codified at NH RSA Ch. 77.1 On January 1, 2025, that asterisk went away.

The I&D tax phased out under HB 2 of 2021, dropping a point a year until reaching zero.2For retirees and the adult children helping them plan, the practical effect is straightforward: every dollar of retirement income — Social Security, pensions, IRA and 401(k) withdrawals, capital gains, taxable interest and dividends — is now untaxed at the state level. New Hampshire is, for income purposes, the closest thing the United States has to a zero-tax retirement domicile. This piece walks through what changed, what is still owed, and where the simpler state picture interacts with the federal layer that did not get simpler.

How the I&D tax worked — and who actually paid it

For tax years through 2024, NH RSA Ch. 77 imposed a flat rate on the sum of a New Hampshire resident’s taxable interest and dividend income, with significant exemptions built in: the first $2,400 (single) or $4,800 (joint) was exempt before any tax applied, and taxpayers age 65 or older received an additional $1,200 exemption.3 Blind taxpayers and disabled taxpayers under 65 received the same supplemental exemption.

Three features of the I&D tax shaped who actually owed it:

• It was narrow. The base was interest and dividends only. Capital gains were never subject to it. Tax-deferred account growth was never subject to it. Withdrawals from IRAs and 401(k)s were never subject to it. Social Security and pension income were never subject to it. In practice, the tax reached taxable brokerage accounts, savings-account interest, CD interest, bond interest, and dividends from non-retirement holdings.
• It was flat.The rate stepped down (5% → 4% → 3% → 2% → 0%) but never had brackets within a year. There was no graduation by income.
• The exemptions did most of the screening. A retired couple, both over 65, with $7,200 of combined exemption space ($4,800 base plus two $1,200 senior adders) could earn that much in interest and dividends before owing a dollar of I&D tax. For households below that threshold — the majority of NH retirees — the repeal changes nothing because nothing was owed.

What is still owed: the property-tax side of the ledger

New Hampshire’s no-income-tax model is funded primarily by property taxes assessed at four overlapping levels: the state education tax, the county tax, the municipal tax, and the local school-district tax. The combined effective rate places NH consistently among the top five states nationally for property-tax burden as a percentage of home value, with median effective rates near 2%.5A retiree living in a $400,000 home should expect to budget $7,000–$10,000 a year in property taxes, depending on the town.

The town-by-town variation is substantial and worth checking before any move within the state. A lakefront property in Moultonborough or Tuftonboro — where high property values dilute the rate — can run an effective rate under 1%, while a service-center city like Berlin or Claremont can effectively levy at close to 3%. The NH Department of Revenue Administration publishes a town-level equalization report annually that makes the comparison straightforward.

The federal layer did not get simpler

State-level tax repeal does not change anything about federal income tax. A New Hampshire retiree still files a Form 1040, still reports all interest and dividend income on Schedules B and 1, still pays federal tax on IRA and 401(k) distributions, and still calculates capital gains under federal rules. The repeal does, however, make the household’s overall effective tax rate measurably lower than it would be in a neighboring state with both a state income tax and similar federal exposure.

The IRMAA piece is the most commonly missed federal interaction. Medicare beneficiaries with modified adjusted gross income above certain thresholds pay an IRMAA surcharge on top of the standard Part B and Part D premiums.6 The MAGI calculation pulls from the federal return, so the same interest and dividend income that no longer triggers state tax can still trigger a Medicare premium increase two years later. For a retiree doing a large Roth conversion or selling appreciated investments, the federal IRMAA effect is the most consequential remaining tax-side consideration.

The other state-level taxes worth knowing

Three taxes remain at the state level and shape the household and small-business picture:4

• Business Profits Tax (BPT). A 7.5% tax on net business income, applicable to entities with gross receipts above $109,000. Sole proprietors, partnerships, and LLCs all fall within the BPT base. For a retiree running a small consulting practice or a seasonal rental business in NH, the BPT can be the primary remaining state tax exposure.
• Business Enterprise Tax (BET).A 0.55% tax on the sum of compensation, interest, and dividends paid out by a business enterprise. The BET applies in parallel with the BPT and is creditable against it — so for most small businesses the BET is an administrative-floor calculation rather than a separate burden.
• Meals & Rentals (M&R) tax.A 8.5% tax on prepared food, hotel rooms, short-term lodging rentals, and motor-vehicle rentals. Retirees don’t pay this directly except as consumers; it is the closest thing NH has to a sales tax and applies in restaurants, hotels, and short-term vacation rentals.

There is no estate tax. There is no inheritance tax. There is no gift tax. New Hampshire’s probate process operates through the Circuit Court Probate Division, with a streamlined administrative procedure for estates under $10,000 and a more formal process above that threshold. The NH Trust Code (NH RSA Ch. 564-B) is one of the more modern in the country and is a frequent reason that out-of-state grantors situate trusts in New Hampshire.

The cross-border worker case

New Hampshire’s tax structure interacts in one common and underappreciated way with neighboring Massachusetts. Many NH residents work in MA — the Boston commuter belt extends well into southern NH — and Massachusetts taxes wage income earned within MA regardless of the worker’s state of residence. A retired-but-still-consulting NH resident who picks up a part-time MA-based engagement may owe MA income tax on that work, even though New Hampshire itself imposes no wage tax. The federal credit for taxes paid to other states only goes so far in mitigating this; for most households the right move is to structure the work as NH-sited if at all possible.

What this changes for retirees in practice

For families planning a parent’s retirement income strategy, the I&D repeal sharpens a handful of decisions:

1. Roth conversion math improved.Pre-2025, a Roth conversion in NH triggered no state tax (because IRA distributions weren’t subject to the I&D tax) but the resulting taxable interest and dividends in the brokerage account that received the converted dollars would generate ongoing state tax exposure. Post-repeal, that ongoing exposure is gone. The federal-only analysis now drives the conversion decision.
2. Asset-location decisions simplified. In a state with an income tax, putting bond funds in a tax-deferred account and stock funds in a taxable account is a standard move. In NH, the state-level driver of that decision is gone; only federal tax efficiency remains. The portfolio is meaningfully simpler.
3. Property-tax planning matters more, not less. With the income side now at zero, the property-tax line on the household budget is the single largest state-level tax cost. The Elderly Exemption, the LMI rebate program, and the choice of town within NH all become higher- leverage decisions than they were when I&D tax was also in the picture.
4. Federal Medicare and Social Security planning unchanged. IRMAA, the Social Security tax torpedo for higher-income beneficiaries, and the federal standard deduction all work the same in NH as anywhere else. The state change does not relieve federal attention.

The bottom line

New Hampshire was already the most tax-favorable state in the country for retirees with significant retirement account assets and pension income; the I&D repeal extends the same favorable treatment to taxable investment income above the old exemption floor. For higher-income retirees with sizeable brokerage accounts, the repeal is a real annual savings; for retirees living on Social Security plus a modest IRA, the repeal is symbolically meaningful but financially modest because they were rarely paying I&D tax in the first place.

The remaining work is on the property-tax side and on the federal side. Both reward attention. The Elderly Exemption application sits unfiled in too many NH town halls; the IRMAA brackets surprise too many retirees doing Roth conversions or selling appreciated property. The state simplified its share of the picture in 2025. The rest of the picture still needs eyes on it.