Everyone wants to have their tax rates reduced. But this isn’t as impossible as some may think. One way to make this happen is to live in a state where there’s no income tax. For example, Florida, Alaska, South Dakota, Texas, Nevada, Wyoming, and Tennessee currently have no state income tax.
Washington levies an income tax on capital gains and investment income, but that’s only for certain high-income residents. Tennessee used to tax interest income and investment, but the Hall income tax was completely repealed in January 2021. New Hampshire is currently taxing interest income and investment but is about to phase out those taxes as of 2023. By 2027, the number of the states with no income tax will be 9.
Relocating to one of these 9 states will bring you a bigger paycheck and you’ll have one less tax to worry about each year. Also, if you’re retired, you won’t have to pay taxes on your Social Security benefits, payouts from your pension, and withdrawals from your 401(k) plan or IRA. What do you think about this?
But don’t expect to spend less money while living there. States with no income tax still need funds to pay for schools and roads, so residents must pay additional taxes to keep the state running. So, before you relocate and hire a moving company to help you take everything you own to one of these states, consider the following:
- Excise, sales, and property taxes
- The impact of lower tax rates on a state’s ability to spend on social services such as healthcare, education, and infrastructure.
This being said, let’s see which states have no income tax!
Total Tax Burden: 5.10% (making it the most tax-friendly state)
Alaska doesn’t have any sales or state income tax. The overall local tax burden on residents — including sales, excise, income, and property taxes — is only 5.10% of personal income, which is the lowest of any of the 50 states.
Once a year, Alaskans receive a payment from the Alaska Permanent Fund Corp., a wealth fund made up of investment earnings and revenue from royalties and mineral lease rentals. In 2021, every citizen received a dividend payment of $1,114.
However, the cost of living in Alaska is pretty high, mostly because of the state’s remote location. Alaska also has the second-highest beer tax in the union, at $1.07 per gallon.
According to US News & World Report, Alaska ranks 47th out of 50 in terms of affordability and 45th out of 50 on the “Best States to Live In” list. Also, the state has some of the fastest rising and highest healthcare costs in the country.
In Alaska, the annual per capita personal consumption expenditures were $48,739 in 2020. Also, in 2017, the American Society of Civil Engineers (ASCE) gave Alaska a grade of C- for its infrastructure, which means the state’s streets are mediocre and require attention.
Total Tax Burden: 6.97%
This popular and attractive state has warm temperatures, mild winters, and a large proportion of elder residents. Excise and sales taxes in this state are higher than the national average, yet the total tax burden is only 6.97%, ranking 6th in the country.
The state may not have any income tax, but because of its higher-than-average housing costs, it ranks 31st in terms of affordability. Also, the state ranked 10th on the US News & World Report’s list of “Best States to Live In”.
However, in 2019, Florida was one of the states with the lowest per-pupil spending, with $9,645 in education expenditures. In 2021, Florida’s infrastructure received a C grade from the ASCE. Six years earlier, the Education Law Center gave Florida the same grade for the impartialness of its state school revenue distribution. In 2014, a resident paid on average $8,076 for healthcare services, $31 higher than the national average.
3. South Dakota
Total Tax Burden: 7.37%
South Dakota, like many other states without an income tax, generates revenue through various forms of taxation, such as taxes on alcohol and cigarettes. If you’re thinking of relocating there, you should know that this state has above-average property tax rates, as well as one of the highest sales taxes in the country.
Among those things that help to keep South Dakota’s residents tax-free are higher sales tax and property tax rates, in addition to several big companies in the credit card industry. South Dakotans only pay 7.37% in income taxes, which ranks South Dakota 8th in terms of the overall rating for taxes.
Residents paid on average $8,933 on healthcare in 2014, ranking the 14th in the country. Although it spent more money per pupil on education expenses, around $10,139 per kid in 2019, it was less than any other surrounding Midwestern state. Furthermore, South Dakota scored an F for school funding distribution.
The state doesn’t have an official letter grade from the ASCE yet, despite the fact that most of its infrastructure is noticeably deteriorated, with 90 dams deemed to have high risky potential and 17% of bridges classified structurally inadequate.
Total Tax Burden: 8.19%
Texas seems to loath personal income taxes so much that it chose to prohibit them in its constitution. Still, due to other reasons such as infrastructure and other services that need to be paid for somehow, the state relies on income from excise and sales taxes to cover the bill.
Property tax rates are also higher than in the majority of states, resulting in an overall tax burden of 8.19% of personal income. Still, Texans’ total tax burden remains among the lowest in the country, with the state ranking 19th.
In the country, Texas ranks 22nd for affordability but ranked 31st on the “Best States to Live In” list. The state spent on average $9,827 per child on education in 2019, placing it below the national average of the 17 Southern states. Also, in 2015, it got a D grade for school funding distribution and in 2021 it received a C grade for infrastructure.
Texans spent on average $6,998 on healthcare in 2014, ranking as the seventh-lowest amount in the country.
Total Tax Burden: 8.23%
Nevada is primarily reliant on revenue generated by high sales taxes on everything from clothes to groceries, taxes on gambling and alcohol, and taxes on hotels and casinos. This results in an overall tax burden of 8.23%, the second-highest on the list. When compared to other states in the country, Nevada still has a very respectable position of 22 out of 50.
Yet, due to its high housing and living costs, the state ranks near the bottom in terms of affordability. Also, the state is ranked 37th on the list of “Best States to Live In”.
In 2019, Nevada spent $9,344 on average per pupil, making it the fourth lowest in the western US. One year earlier, the ASCE gave the state a C grade for its infrastructure.
Not only did Nevada receive an F grade from the Education Law Center in 2015, but it was also the least good state in terms of the impartialness of its school funding distribution. In 2014, a Nevada resident spent $6,714 on average on healthcare, making it the lowest on this list, but also the fourth lowest in the whole country.
Total Tax Burden: 6.14%
Having an estimated 6 human beings per square mile, Wyoming is the second least dense state, following Alaska, which has around one person for every square mile. Citizens don’t pay any corporate or personal state income tax, as well as no retirement income tax, and have low sale tax rates.
The overall tax burden —income, property, excise, and sales taxes being included — is 6.14%, placing the state as the third lowest. Wyoming, like Alaska, taxes natural resources, particularly oil, to compensate for the lack of a personal income tax. The state ranks 33rd in terms of affordability and 35th on the “Best States to Live In” list.
The state was the second-highest spender on education among the US western states in 2019, spending $16,304 per pupil. It also received an A for school funding distribution in 2015, being the best on this list. When it comes to healthcare expenses, Wyoming residents spent on average $8,320 in 2014.
Although the state has not yet gotten an official letter grade for its infrastructure, the ASCE discovered that around 7% of its bridges are structurally weak while 99 of its dams pose a high risk.
Total Tax Burden: 5.74%
Prior to 2016, Tennessee used to tax income from investments, including most dividends and interest, but not wages. As of 2016, the legislation included a plan to reduce taxes on unearned income by 1% every year until the income tax was repealed at the start of 2021. To make up for the shortfall, the state levies high sales taxes, including the highest beer tax in the union, $1.29 per gallon.
The overall tax burden is 5.74%, the second lowest in the country. When it comes to affordability, Tennessee ranks 17th, and 29th on the “Best States to Live In” list. In the education category, the state ranked just above Texas spending $9,868 per pupil in 2019.
Residents spent on average $7,372 on healthcare in 2014, placing Tennessee 39th out of 50. Although the state has not yet gotten a letter grade for its infrastructure, the ASCE has noted that around 4.5% of its bridges are structurally inadequate and 270 of its dams pose a high risk.
Total Tax Burden: 9.34%
Washington has a young state population, with just around 16% of its residents having more than 65 years old, and lots of major employers, as there is no state-mandated corporate income tax (remember that those high-income residents do have to pay tax on their capital gains).
Residents do have to pay substantial excise and sales taxes, as well as a lot of money on gasoline because Washington has the highest gas prices compared with other states. Having a 9.34% overall tax burden, the state ranks 26th out of 50.
Unusually higher-than-average housing and living costs ranked Washington 44th in terms of affordability. Still, these high costs may not hurt some residents, as their state has been named the overall best place to live in 2021.
Although Washington has no income tax, its residents spent on average $7,913 on healthcare in 2014. In 2019, however, the state spent more on education than most other states, at $14,223 per child, despite receiving a C rating for school budget distribution four years earlier. In the same year, the ASCE gave Washington the same letter grade for its infrastructure.
9. New Hampshire
Total Tax Burden: 6.84%
New Hampshire doesn’t have an income tax, but it does tax interest and dividends. The New Hampshire Senate voted on legislation to phase out the investment income tax over five years. This means that in 2027 the legislation will be fully implemented.
The state doesn’t have a state sales tax, but it does have excise taxes, as well as taxes on alcohol, and its 1.86% property tax rate is the third highest in the US. Still, the overall tax burden is just 6.84%, ranking the state 5th in the country. In terms of affordability, New Hampshire comes in at the 38th place out of 50, as well as 4th on the “Best States to Live In” list.
Despite spending more on education than any other state on this list — $17,462 per pupil in 2019 — the state’s expenditure was among the lowest in the northeastern US.
In 2017, New Hampshire got a somewhat higher grade of C- for its infrastructure. In terms of healthcare spending, the residents spent on average $9,589, the 9th highest in the country.
This all said, it’s important to understand that no income tax, or low taxes alone don’t deliver all the information you need to know. If you’re thinking of relocating, pay attention to all the details and variables to get a better picture and make sure you’re doing the right thing.
Here’s another tax-related article you may also like: Yes, You Can Avoid Some Taxes With These 6 Solutions!