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Senate committee backs change to stop automatic withholding from exempt military pay
Summary
The Senate Finance and Tax Committee voted unanimously to recommend Senate Bill 2047, which would prohibit automatic income-tax withholding from military pay that the 2023 Legislature exempted from North Dakota income tax unless the service member requests withholding.
The Senate Finance and Tax Committee voted unanimously to give Senate Bill 2047 a “do pass” recommendation after a short hearing that centered on preventing unnecessary tax withholding from military pay.
Tax Commissioner Brian Krasches told the committee the bill would amend North Dakota withholding law so employers cannot withhold income tax from military pay that the 2023 Legislature exempted from state income tax unless the service member specifically requests withholding. “The simple change ensures service members receive all of their exempt military pay as quickly as they earn it,” Krasches said. The bill as drafted would be effective for taxable years beginning after Dec. 31, 2025.
The bill’s sponsor and Krasches said the change responds to Senate Bill 2293 (2023), which exempted certain military pay from state income tax but left the withholding requirement in place. That mismatch meant some exempt pay was withheld and later refunded, delaying funds to service members. Krasches said he would follow up with committee members about the precise definition of “active duty” as used for the exemption, including whether part‑time National Guard or reserve training pay qualifies.
Committee members asked whether the effective date could be moved earlier. Krasches said the department would be willing to consider an earlier effective date and that similar timing changes had been made on other tax bills. He also described plans for outreach: the tax office would work with military payroll specialists and would create a form so an individual could elect withholding or opt out, similar to federal withholding election forms.
Senator Dale Patton moved a “do pass” recommendation; Senator Dean Rummel seconded. The clerk recorded a unanimous roll call in favor. The committee noted the bill’s implementation would require coordination with payroll administrators and some public education to ensure service members understand their withholding options.
If approved by the Legislature, the bill would change only withholding procedures; it does not itself change the underlying exemption enacted in 2023.
