Which Is Your Best State To Live In Out Of The Nine That Have No Income Tax?

Relocating to a state with no individual income tax is one way to reduce your tax burden. In addition to keeping a larger portion of your hard-earned income, you won’t have to prepare and submit a state income tax return.

• A state with no income tax is a good option if you’re searching for the best retirement state in terms of taxes.
• Relocating to one of these nine states with no income tax will help you save more money for yourself by reducing your overall tax burden.
• You should consider your lifestyle, personal reasons for moving, and cost of living in addition to your tax obligations.

States exempt from income taxes

Nine states in the United States do not presently impose an individual income tax. The states in question are Wyoming, Alaska, Florida, New Hampshire, Nevada, South Dakota, Texas, and Washington.

• Alaska

There is no state income tax in Alaska. However, living in Alaska may cost more due to its remoteness. In 2023, the cost of living exceeded the national average in all areas, including housing, groceries, utilities, transportation, and medical expenses. Specifically, utilities were the highest in the country.

Alaska, on the other hand, has the lowest average local and state sales tax rates as well as the lowest state gasoline tax rates. It has the lowest total tax burden in the nation.

• Florida

The cost of living in Florida is higher than the US average. Nonetheless, the Tax Foundation’s research from 2022 indicates that it has a low tax burden—it ranks as the 11th least taxed state in the nation. The average combined state and local sales rate in the Sunshine State is 7.002%.

• New Hampshire

Both local and state sales taxes are absent from New Hampshire, as is the state income tax. It does, however, have a 4% dividend tax and a flat interest rate. At 9.6%, the Granite State has the 16th lowest tax burden in the country.

In contrast to the national average of $4,374 in 2023, it has the lowest state tax collections per capita, coming in at $2,497. New Hampshire has more expensive housing and living expenses than a lot of other states in the union.

• Nevada

The general cost of living in the Silver State is quite similar to the national average. Nevadans, however, spend more on transportation.

Nevada does not impose a corporation income tax in addition to not having an individual income tax. Nonetheless, gross tax receipts are levied by the state. In Nevada, the average rate of combined sales and state taxes is 8.23%. At $1,044 per capita, state and local property taxes are less than the national average of $1,675.

• South Dakota

In addition to not having to pay state income taxes, South Dakotans also benefit from lower living expenses, especially when it comes to housing and utilities.

In South Dakota, corporate taxes or state income taxes are not the responsibility of the taxpayer. Additionally, the Tax Foundation reports that in 2022, the state of Mount Rushmore will collect $2,707 in state taxes per capita, ranking it 48th lowest overall. Only two other states, Florida and New Hampshire, have lower state tax collections per capita.

• Tennessee

The state income tax of Tennessee was enacted in 1931 but was eliminated in 2021. Tennessee has one of the lowest tax burdens, at 7.6%, despite having one of the highest combined sales and local tax rates in the country, at 9.55%. Tennessee is the eighth most affordable state for residents, with a cost of living that is lower than the national average, according to data from the Missouri Economic Research and Information Center.

• Texas

Personal income taxes are prohibited by the Texas state constitution. Gross receipts taxes are imposed on taxpayers in Texas, but neither corporate tax nor state income tax are due. With $2,718 per person, state tax collections are among the lowest in the nation, according to the Tax Foundation. Additionally, the Lone Star state has one of the lowest rates of state taxes. In general, Texas has a cheaper cost of living than the US average, especially when it comes to housing.

• Washington

Income taxes were eliminated in Washington state in 1933. Its combined local and state sales tax rate is among the highest, nevertheless. The Evergreen State will also likely have a higher cost of living. It is among the most expensive states to live in because residents of Washington pay much more for housing and transportation.

• Wyoming

The state tax rate in Wyoming is 7.5%, which is among the lowest. The rate of property tax is 0.56%, and the combined state and local tax rate is 5.44%. In terms of housing, utilities, and transportation in particular, Cowboy State residents enjoy generally lower living expenses than the national average.

PROS:

• Greater paychecks: Although all taxpayers must prepare and file their federal income taxes, residents of states with no income taxes will pay less in taxes overall. This could imply that you can allocate more funds to your other financial objectives.
• Simplified tax: If you are not required to report your income tax, you probably won’t have to prepare and submit a state tax return. This translates to reduced expenses, hassles, and time spent filing your taxes.
• Can attract a larger population: This could be a drawback if you’re looking to live in a less populated area, but states that provide tax breaks, like a lower income tax, may draw in more people. A more populous community, economy, and culture may result from increased population.

CONS:

• Perhaps higher property and sales taxes: Relocating to a state without an individual income tax can result in tax savings. You will still be responsible for paying other taxes, though, like local, sales, property, and gasoline taxes. Perhaps to make up for the lack of an income tax, these taxes are higher. In Texas, where there is no income tax, your property taxes will increase by 1.6%.
• Have less money available to spend on infrastructure and education: The state may not have as much money to invest in public transportation, roads, highways, and bridges, as well as infrastructure related to education, as a result of lower tax revenue.
• Potentially unable to take the SALT deduction: The state and local tax (SALT) deduction may not be available to you if you are an itemizing taxpayer for federal taxes. You can write off up to $10,000 in state income, sales, or property taxes that you have paid.

States with no income taxes – how do they make money?

States with no income taxes make up for this by collecting money from other sources of taxes, like excise, sales, property, dividend, and interest taxes, as well as taxes on hospitality and tourism. Therefore, even though the state doesn’t get money from the income tax, it does from other taxes.

Would it be advantageous to relocate to a state with no income tax?

Relocating to a state with no income tax could result in you keeping more of your paycheck (as well as potentially simpler tax filing procedures). On the other hand, the cost of living may increase and you may end up paying more in other forms of taxes.

The financial benefits will depend on several variables, including your current residence, your income, and the tax credits and deductions you qualify for.

Think about your desired lifestyle and whether relocating to a state with no income tax will help you attain it, aside from taxes and money. Paying state income taxes occasionally can make living in a place you love worthwhile.

Conclusion

States with no income taxes are frequently thought of as excellent places to retire. But in addition to tax advantages and cost of living variations, you should carefully weigh all the reasons you might move to a different state, such as downsizing, being near family, or enhancing your quality of life. A thorough examination of all factors, including lifestyle and finances, can assist you in making the best decision.