There are also no retirement income taxes, and sales tax rates are quite low. New Hampshire has some of the highest average property taxes per capita in the nation. Washington will get you at the gas pump with a combined federal and state gas tax of nearly 68 cents per gallon. Instead of collecting sales taxes and personal income https://turbo-tax.org/ taxes, the Alaska state government relies on other types of taxes (including excise and severance taxes) to fund its operations. Most of its revenue comes from gas production and oil drilling. But due to the decline in oil prices, the governor has proposed that the personal income tax be reinstated to reduce its budget deficit.

New Hampshire does not tax earned income but does tax dividends and interest. New Hampshire’s Senate passed legislation to phase out the investment income tax by 1% per year over five years, with full implementation by 2027. The state has no state sales tax but does levy excise taxes, including taxes on alcohol, and its average property tax rate of 1.86% of property values is the third highest in the country.

Is it better to live in a state with no income tax or no sales tax?

States with no income tax seem to offer the opportunity to keep more of your hard-earned money. Without the revenue from income taxes, states may end up making up the difference through other taxes or assessments. Additionally, the following are tax-free states in the USA that don’t have income taxes for earned income, but they do tax dividend and interest income. This will phase out in future years, however, making the states both income tax free by 2025. Perhaps the most critical number to crunch is your cost of living. This includes tallying up the costs of housing (rental or purchase), food, wages, health care and lifestyle.

In 2021 the ASCE awarded it a grade of C for its infrastructure. Texas spent $6,998 per capita on healthcare in 2014, the seventh-lowest amount in the U.S. For example, Wyoming makes up for its lack of taxes by taxing oil. Although Texas is one of the top states without state tax, it’s only around the 22nd most affordable state in America. The Sunshine State is one of the most popular destinations for vacationers and retirees for a lot of reasons, and its balancing act on taxes is one of them. Ensure you check with the state you plan to retire in if you have or will have a government pension.

No Income Tax States [Updated April 2023]

Before 2016, Tennessee taxed income from investments, including most interest and dividends but not wages. Legislation passed in 2016 included a plan to lower taxes on unearned income by 1% per year until the tax was eliminated at the start of 2021. To make up for the shortfall, Tennessee levies high sales taxes and the highest beer tax of any state in the union at $1.29 per gallon. One of the downsides of rental property investments in New Hampshire is the property taxes.

CrossLink is the industry’s leading professional tax software solution for high-volume tax businesses. Living in a tax-free state might be attractive to many Americans residing in a state with high-income taxes. Nothing is free, however — states still have to collect enough revenue to fund services and infrastructure. Because there are a number of additional state taxes imposed outside of income tax, the best states for taxes are really on a case by case basis. You must consider all taxes imposed, plus the cost of living in each state.

These 9 states have no income tax — here’s what to consider before moving there

In the absence of income taxes, state and local sales tax rates, the overall cost of living and other fees could still drive up the cost of living. However, taxpayers in these states are still subject to other types of taxes, including local taxes, property taxes, or sales taxes. Like many states with no income tax, South Dakota rakes in revenue through other forms of taxation, including taxes on cigarettes and alcohol. The home of the Lakota Sioux and the Black Hills has one of the highest sales tax rates in the country and above-average property tax rates. Wyoming has few citizens since it is the second least densely populated state.

• There are also no retirement income taxes, and sales tax rates are quite low.
• As the economy rebounds from the pandemic and remote work becomes increasingly more common, Americans might find that they can live and work in different places than they could before the outbreak.
• Some of the English colonies in North America taxed property (mostly farmland at that time) according to its assessed produce, rather than, as now, according to assessed resale value.
• Some states, such as Washington, have never had a personal income tax.
• Everything’s bigger in Texas—except for the individual income tax rate.
• While the cost of living might not be a deal-breaker for most people, Floridians may still have to contend with a competitive housing market and prices.
• Instead, these states charge more in other taxes, such as sales and capital gains taxes.

A couple of downsides of living there are the remote location and steep cost of living relative to median family incomes. With no income tax to rely on, the state of Washington charges a higher sales https://turbo-tax.org/9-states-with-no-income-tax/ tax to bring in revenue. At 6.5%, the state’s tax rate is among the highest in the nation. Janet Berry-Johnson is a CPA who writes about income taxes, small business accounting, and personal finance.

Both states have thriving economies driven by various industries, including energy, agriculture, and technology. The absence of state income tax contributes to the business-friendly environment, attracting entrepreneurs and corporations to establish their operations in these states. Some of the English colonies in North America taxed property (mostly farmland at that time) according to its assessed produce, rather than, as now, according to assessed resale value. Some of these colonies also taxed “faculties” of making income in ways other than farming, assessed by the same people who assessed property. These are generally imposed at a flat rate and tend to apply to a limited set of income items.

• Washington is home to many major employers and young professionals, thanks to its position as one of the lowest tax states.
• Other states have partial or full exemptions for people who meet specific income requirements.
• Nevada relies heavily on revenue from high sales taxes on everything from groceries to clothes, sin taxes on alcohol and gambling, and taxes on casinos and hotels.
• For specific advice about your unique circumstances, consider talking with a qualified professional.
• As of 2021, Washington charges 49.4 cents per gallon in gas taxes and fees, the third-highest in the country behind Pennsylvania and California, according to The Energy Information Administration.
• Nevada, known for its bustling city of Las Vegas, is renowned for its zero income tax policy.

These taxes can add up over time, generating more revenue for states than a state income tax alone. In Florida, for example, residents must pay sales taxes, higher property taxes, and corporate income taxes. The table below illustrates the differences among states with no income tax. Even though there are no individual or corporate income taxes in Wyoming, homeowners must pay property taxes.

Is a state with no income tax better or worse for your finances?

She lives in Omaha, Nebraska, where she enjoys cooking, reading, and spending time outdoors with her husband, son, and their rescue dog, Dexter. In the nine states with no income tax (listed below), all residents avoid paying tax on their earnings. We include New Hampshire in this list as it has no tax on earned wages, but note that it does charge a flat income tax on investment earnings. It depends on several factors, including your taxable income, investment strategy, and the number of rental properties you manage. Generally, high earners can do better in a state with no income tax, as it allows them to better save and reinvest their earnings despite the higher sales tax. The home of Mount Rushmore and Deadwood Mountain is one of the nine states with no income tax for individual residents.

A financial advisor can help you optimize a tax planning strategy. Instead, it relies on property taxes for roughly 50% of its state and local tax revenue, according to a 2020 report by taxfoundation.org. However, moving to a state with no income tax isn’t always beneficial. Every state needs money to fund public schools, build and maintain roads, pay state employees, and fund other projects and programs. If the state doesn’t get that money through state income taxes, it typically collects it from other taxes, such as property taxes or sales taxes.