The thought of paying less in taxes is appealing to many Americans. For some, moving to one of the states with no income tax seems like an easy way to keep more money in their pockets.
Of the 50 states, only 9 do not levy a personal income tax on wages and salaries: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
While residents of these tax-free states enjoy the benefits of not paying state income tax, most still contend with other taxes like sales tax, property tax, and taxes on specific goods and services.
This article will examine the 9 states with no income tax and what you need to know if you’re considering relocating to one of them. Understanding the tax structure and economic climate of these states can help you determine if moving to a no-tax state makes financial sense for your situation.
Key Points: States With No Income Tax
- 🏞️ Nine states in the U.S. have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
- 💲 Residents of these states pay no tax on their wages and salaries but may still face other taxes like sales taxes, property taxes, and taxes on specific items or services.
- 🚚 Over 3 million Americans have moved to states with no individual income tax in recent years, with California and New York experiencing population decreases.
- 🌇 While living in states with no income tax can save you money, these states often compensate with higher sales taxes, property taxes, or excise taxes. This can affect residents, especially those on fixed incomes.
- 🌐 The article provides information on states with high and low taxes and offers resources to compare the cost of living between different locations.
Table of Contents
Why Move to a State With No Income Taxes?
What states don’t have income tax? Why should you consider moving to a state that does not tax income? It’s simple!
These states offer great opportunities for anyone looking to relocate. In addition, they typically offer a low cost of living and housing affordability.
For example, Nevada offers no individual tax, no corporate income tax, no estate or gift tax, and no inheritance tax. The only taxes Nevada does charge are: First-year residential occupant tax, sales tax (6.85%), and a median property tax rate (0.6%)
So, if you want to avoid taxes, you are probably already considering a move. But, first, find out why these nine states are so popular in the U.S.
If it’s free, why pay?
Reasons to Move
There are several reasons why you might be considering moving to another state. Maybe you’re looking to retire, you work remotely, you are looking for a better quality of life or maybe you just want to live somewhere new. Maybe you are just tired of paying high state income and property taxes. Either way, we’ve got you covered.
I’ve compiled a list of the top 15 states with no income tax, or low individual taxable income. These states offer great opportunities for anyone looking to relocate. They also typically offer a.
While it is well-known that states with no income tax offer great opportunities for anyone looking to relocate, it is unclear whether moving to these states leads to
- an increase in earnings
- a low cost of living
- housing affordability
- or a higher standard of living.
To investigate this, I conducted interviews with people who have moved to states with no income tax and analyzed data on the economic impact of moving to a state with no income tax.
- But what happens when people move into those states? Do their earnings go up? Is their standard of living higher? Or is it just the same as before?
- This blog post explores the impact of moving to a state with no tax on income earned. We’ll look at the data and see what it tells us.
- If you live in one of those states, you may be wondering why you should care. After all, isn’t paying less tax good? Well, yes and no.
Is Rapid Address Change Legit or Scam?
But before making such a big decision, it’s important to know what kind of tax breaks each state offers.
Which States Have No Individual Income Tax Rate
Over the years with the rise of inflation, retiring baby boomers and remote workers are looking at ways to lower their costs. Thus, states with low or no personal income tax rates have become more and more attractive , and people are moving to these states.
Federal income taxes are unavoidable, but you can choose to live in states that do not charge state income taxes. In the US, there are a handful of these states with no income tax. This means that residents of those states do not have to pay taxes on their income.
It’s like the “no money down” promotion that car dealers use to get you into the dealership… “NO STATE INCOME TAXES”
And more and more people are choosing to make the move to states with no income taxes. Over 3 million Americans moved to states without individual income tax in the last several years.
Three states alone make up a majority of these people – according to U-Haul’s most recent study. The biggest population decreases were the high tax states like California and New York.
U.S. Population Migration Data
How is The Population Shifting in Your State?
Fastest Growing Cities
Everyone hates paying taxes, so moving to certain states can help you avoid one of the two certainties of life (death and taxes). And States are noticing that this is appealing to people.
More and more states are choosing to go without a state income tax, as the trend and approaches to income taxes is growing.
- Texas amended their state constitution in 2019 to no longer allow a state income tax.
- Then in 2021, Tennessee eliminated the little bit of taxable income that remained.
“States without an income tax are like little children.
They have no money, but they have everything.”
Which States Can Save You The Most on Income Taxes?
Have you been wondering?
- How many states have income tax?
- What states don’t have income tax?
- What are the states with no income tax?
There are just 9 states in the U.S. that have no income tax. Here is a list of no income tax states:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
If you live in one of these states, you will not have to pay any income tax. This can potentially save you a lot of money, especially if you have a high salary. With Federal Income Tax rates now reaching as high as 37%, you could be paying nearly 50% in combined federal income taxes and state income taxes in some states (I’m looking at you, California).
Try our annual salary to hourly wage calculator
Texas
Why is it cheap to live in Texas?
The state’s population is growing faster than any other. In most Texas cities, housing is very affordable – and the overall cost of living is reasonable for a middle class family. Texas ranks very favorable in affordability ranking on the affordability scale for housing.
How Texas makes up for the lack of state income tax revenue?
The downside is Texas has some of the highest median property tax rates in the country. Texas charges higher than average sales and property taxes. Texans pay an average of 8.20% for local and state combined sales tax rates. Texas also has the sixth-highest property taxes in America.
Overall, life in Texas is quite affordable – being the most affordable state with no income taxes.
- Average annual earnings $96,468
- Average home value $314,718
- Tax Rate 0%
- Average sales taxes 8.19%
- Overall cost of living rating 92.1
Wyoming
Why is it cheap to live in Wyoming?
Wyoming is one of the least expensive places to live in the country – and is a state that has no taxable income. Along with no state income taxes, Wyoming has a 4 percent sales tax rate. Property taxes are also low, with an effective rate of just 0.69%.
Unlike other states, Wyoming is pretty fair with it’s residents when it comes to other taxes. Wyoming has the second lowest state & local tax rates in the country at only 7.5%. Property taxes are also among the lowest in the nation.
How Wyoming makes up for the lack of state income tax revenue?
Wyoming does generate much of its revenue instead from its state sales tax rate, but even that is average at just 5.22%.
With minimal taxes, a below average cost of living and decent salaries for middle class families, Wyoming is one of the best states for overall affordability.
- Average annual earnings $80,389
- Average home value $320,939
- Tax Rate 0%
- Average sales taxes 5.34%
- Overall cost of living rating 94.3%
Washington
Why is it cheap to live in Washington?
While living in Washington (especially Seattle) is very expensive, it is still a great state with no income taxes. With one of the highest average annual salaries at over $110,000 a year and no state income – it can more than offset the higher cost of living
How Washington makes up for the lack of state income tax revenue?
Here’s the downside to living in Washington State. They charge one of the highest sales and local taxes in the country. Gas is heavily taxed at 49 cents per gallon, and the tax on alcohol is even higher (almost double any other state). They are even trying to add a capital gains income tax in Washington State.
- Average household earnings $106,549
- Average home value $640,494
- Tax Rate 0%
- Average sales taxes 9.21%
- Overall cost of living rating 111.6
Florida
Why is it cheap to live in Florida?
First thing most people think about when you mention Florida is the sun, palm trees and Disney. Those three add up to an incredible tourism economy few states can match. The taxes raised on tourists helps to offset the fact Florida has no state income tax, and add to the reasonable cost of living.
Florida is another state with no income tax. The state has an average median property tax rate is 1.1%. Florida currently has the 11th lowest tax burden in the U.S.
How Florida makes up for the lack of state income tax revenue?
The state government generates much of its revenue through a sales tax of 6%. When combined with county and local taxes, the sales tax can be as high as 8%. These taxes are primarily aimed at tourists spending money while on vacation.
- Average household earnings $80,986
- Average home value $415,762
- Tax Rate 0%
- Average sales taxes 7.05%
- Overall cost of living rating 100.3
Does Nevada Have An Income Tax?
Why is it cheap to live in Nevada?
There is no Nevada income tax for the state. Nevada has a relatively high household income level, but also a higher than average cost of living. The fact that there is no state income tax certainly helps. Property taxes are also low, with an effective rate of 0.61%.
Nevada takes it a step further with no inheritance taxes.
How Nevada makes up for the lack of state income tax revenue?
Just like Florida, Nevada is a major tourist destination and has one of the highest state sales tax revenue in the country, as well as one of the highest gasoline taxes. And of course, the heavily tax gambling.
- Average household earnings $83,588
- Average home value $484,530
- Flat Tax Rate 0%
- Average sales taxes 8.32%
- Overall cost of living rating 106.3
South Dakota
Why is it cheap to live in South Dakota?
Surprisingly, South Dakota has a very average cost of living for a middle class family. But the cost of housing there is very low, a fair 6.4% state sales tax and no state income tax make it a great choice. There are no inheritance or estate taxes – leading South Dakota to maintain the 4th lowest state and local tax burden in the U.S..
How South Dakota makes up for the lack of state income tax revenue?
South Dakota creates much of its revenue via very high taxes on alcohol, tobacco and fuel. South Dakota also has higher than average property taxes place, and spends the least amount in the country on education.
- Average household earnings $90,680
- Average home value $292,488
- Tax Rate 0%
- Average sales taxes 6.4%
- Overall cost of living rating 101
Alaska
Why is it cheap to live in Alaska?
Who has the lowest tax burden in the entire country? Alaska does.
Some states, like Alaska, have natural resources that generate a lot of revenue, so they don’t need an income tax. Not only does Alaska not have a state income tax – they will PAY YOU to live there!! Every resident gets about $1,200– a year from the state!!
A sub 3% sales tax, no income tax, one of the lowest property taxes and high average household income all make Alaska an attractive place to live.
How Alaska makes up for the lack of state income tax revenue?
Housing is pricey here and the overall cost of living is extremely high due to the isolation of the state. The cost of food, energy, child care and health care costs make it the sixth most unaffordable state.
Of all states, Alaska rely the 2nd most on property taxes, with tax collections accounting for 51.8%.
- Average household earnings $95,705
- Average home value $337,373
- Tax Rate 0%
- Average sales taxes 1.76%
- Overall cost of living rating 127.1
Tennessee
Why is it cheap to live in Tennessee?
Tennessee is the most recent entrant to the list of states with no income tax, joining in 2021 by eliminating the “Hall income tax”. Housing and cost of living are both below average here, making it reasonable for a middle class American family to survive. Tennessee has the 3rd lowest state and local tax burden in the country.
How Tennessee makes up for the lack of state income tax revenue?
If you live in Tennessee you will be paying way above-average sales taxes of 7%, the 2nd highest in the country. To rub salt into that wound, is an average local sales tax rate of 2.55% on top of that. This makes Tennessee the highest combined tax state in the nation. Throw in the “sin” taxes and the nations highest beer tax on top of that.
- Average household earnings $80,185
- Average home value $297,943
- Tax Rate 0%
- Actual sales taxes 9.53%
- Overall cost of living rating 89
New Hampshire
Why is it cheap to live in New Hampshire?
The first state in the Northeast of the U.S. to make the list. New Hampshire has a very high annual annual household income, and even better, is a NO state sales tax!!
Overall, it is a very tax-friendly state. And it is even phasing out the dividend and interest tax by 1% per year through 2027.
How New Hampshire makes up for the lack of state income tax revenue?
There are no state income taxes but, NH has a 5% tax on interest income and dividends income. As mentioned above, it is being phased out.
So how does NH do it? With he nations 3rd highest property taxes, and high average home values. Of all states, New Hampshire and Alaska rely the most on property taxes, with tax collections accounting for 67.6% and 51.8%
- Average household earnings $111,787
- Average home value $450,827
- Tax Rate 0%
- Average sales taxes 0%
- Overall cost of living rating 109.9
States With Low Income Taxes
North Dakota
Why is it cheap to live in North Dakota?
Unlike its neighbor to the South, North Dakota does charge a state income tax. But it is only 2.9%. The low tax burden comes with average cost of living and housing.
- Average household earnings $87,614
- Average home value $282,461
- Tax Rate 2.9%
- Average sales tax Rate 6.86%
- Overall cost of living rating 98.2
Pennsylvania
Why is it cheap to live in Pennsylvania?
Low home prices and an average state income tax of 3.07% combine to be a fair place to live.
- Average household earnings $100,056
- Average home value $267,549
- Tax Rate 3.07%
- Average sales taxes 6.34%
- Overall cost of living rating 102.5
Indiana
Why is it cheap to live in Indian?
Affordable home prices, and lower than average cost of living.
- Average household earnings $93,692
- Average home value $221,437
- Tax Rate 8.53%
- Average sales taxes 6.49%
- Overall cost of living rating 90.6
Michigan
Why is it cheap to live in Michigan?
A low 4.25% state income tax rate while being one of the most affordable states to live in.
- Average household earnings $98,869
- Average home value $234,386
- Tax Rate 4.25%
- Average sales taxes 6.00%
- Overall cost of living rating 91.3
Arizona
Why is it cheap to live in Arizona?
4.5% state income tax, and catching up to Florida as the place of choice for retirees to move.
- Average household earnings $93,563
- Average home value $458,907
- Tax Rate 4.5%
- Average sales taxes 8.40%
- Overall cost of living rating 103.2
Colorado
Why is it cheap to live in Colorado?
The Mile High state certainly does not have a mile high income tax. It may be expensive to live there, but it is a great and affordable place to live when you factor in the taxes.
- Average household earnings $111,730
- Average home value $604,911
- Tax Rate 4.63%
- Average sales taxes 7.65%
- Overall cost of living rating 105.3
These are just a few of the most tax-friendly states in the United States. There are many others, and the best state for you will depend on your individual circumstances. Be sure to consider all the factors that are important to you when making your decision.
Sources for the above:
- Average household income
- Average home value
- Income Tax Rate
- Average sales taxes
- Overall cost of living rating
SO WHAT IS THE CATCH? THERE IS ALWAYS A CATCH
Many people feel that states with no income tax are the best states to live in, especially if you are a retiree or a remote worker. The main selling point of living in states with no income tax is that your paycheck should go further.
On the other hand, in states with high income taxes, some say it leaves you with less money to save or spend. The argument is that a large portion of your paycheck is automatically taken out in taxes.
While a lack of income tax might seem like a good deal, it often comes with trade-offs.
While you will keep more of your paycheck, these states still need to create revenue somehow. For example, states without income taxes might have higher excise taxes such as
- actual and combined sales tax rates
- much higher property taxes
- or they might not offer certain services that residents of other states take for granted.
So while you may keep more of your paycheck in a state with no income tax, you may end up paying more in other forms of taxes. It can feel like a bait and switch – it’s like a store that offers free shipping, but then raises the price of the item; so it costs the same or even more.
So who is right, and which are the states with no Personal income tax?
As you can see in the picture below, a visual representation for how much of each state in the U.S. gets their revenue from taxes on wagestax, versus other sources of revenue which will get to a bit later in the article.
Individual Income Tax as a Proportion of State Tax Revenue
Why Isn’t Everyone Moving to a State That Doesn’t Tax You?
Well, these no tax states are not charities, are they? States operate similar to a business – they have to pay for roads, average school spending/education, police and firefighters, and other services. These services cost a lot of money, and the revenue needs to be raised via other additional excise taxes.
So if there are no salary taxes in these states – they need to generate revenue from somewhere.
So How Do States Survive Without Tax Revenue?
Usually in the form of higher sales taxes, gas taxes, and property taxes – or they have to cut some services.
For example
- The two states that have the highest property taxes, New Hampshire and Texas, also happen to be 2 of the 9 states that have no state income taxes.
- The state of Washington charges some of the highest gas taxes in the country, but no state income tax.
Are you starting to get the idea that although a state may have zero state income taxes – it may be just shifting the taxes elsewhere. And it doesn’t always mean you even pay less in taxes overall. It just means the individual tax burden you do pay is just shifted.
Or just like a business, you don’t always have to raise prices – sometimes you can just shrink the product (aka shrinkflation), since most consumers won’t notice. That’s exactly what many states with no income tax do as well.
- The two states with the lowest investments in education, South Dakota and Wyoming, are two states that don’t charge an income tax.
AWESOME CHART SHOWING PERCENT CHANGE IN POPULATION BY GAIN net positive and net negative
It’s up to you to decide if that trade off is worth it or not.
Here is an amazing research report on the inequality of state and local tax for those that are interested
Two columns
The 6 least equitable tax states (notice a trend here? What do they have in common?)
- Washington
- Texas
- Florida
- South Dakota
- Nevada
- Tennessee
The 6 most equitable tax states
- California
- Washington DC
- Vermont
- Delaware
- Minnesota
- New Jersey
The five states with the highest average combined state and local sales tax rates in 2023 are:
- Louisiana (9.55 percent of income)
- Tennessee (9.548 percent)
- Arkansas (9.44 percent)
- Alabama (9.22 percent)
- Washington (9.21 percent)
Another Fascinating piece that I recently read. It actually shocked me, because we see so many people leaving California (the highest state income tax) to move to Texas every year!!
So, What Do States Do Then?
If you look at the picture below from this great article, you will see where the income tax free states generate their revenues. I personally found it most interesting that none of the “zero tax states” are much lower than the median. Once again, they have all shifted their tax revenue from an income tax to an excise tax, that’s all.
For those like me who love digging into date, will link to this article by the Census that reviews the State and Local Government Tax Revenue for First Quarter 2022
What You Should Consider
There are a lot of things to consider when making the decision to move to states with no income tax. The cost of living in the state, the job market, home prices and the overall quality of life are just a few of the important factors to weigh.
For many people, the biggest selling point of states with no income tax is the extra money in their pockets.
- If you’re working in a state with high taxes on pay, moving to a state with no taxes could mean a significant increase in your take-home pay. This could make a big difference in your ability to save for retirement, pay down debt, or simply have more disposable wages each month.
- Of course, the cost of living in a state with no income tax may be higher than in a state with taxes. So you’ll need to consider whether the extra money you’ll have in your pocket will offset the higher cost of living.
- The job market is another important factor to consider. If you’re in a state with high taxes, you may be able to find better job opportunities in a state with no income tax. This is because businesses owners may be more likely to locate in states with lower taxes, which could create more jobs.
Ultimately, the decision of whether to move to a state with no income tax comes down to a personal one. You’ll need to consider all of the factors that are important to you and make the decision that’s best for your situation.
Is Living In One Of These States Better
There are pros and cons to living in a state with no state income tax versus living in a state with an income tax.
PROS
- One advantage of living in a state with no income tax is that your paycheck will not be reduced by state taxes. Your take-home pay will be higher since you won’t have any taxes deducted from your paycheck. This can be a significant benefit if you are on a tight budget. Retire
- If you’re in a high tax bracket, this can mean thousands of dollars more in your pocket each year. This extra money can be used to save for retirement, invest, or simply enjoy life a little more.
- Another pro is that businesses tend to do better in states with no income tax. This is because businesses success comes from having more money to invest and expand. This can lead to more jobs and economic growth.
CONS
- A disadvantage of living in a state with no income tax is that the state may have to rely more heavily on other forms of taxation, such as sales taxes and higher property taxes. This can be an individual tax burden for residents, especially if the sales tax is high and if you live on a fixed wage. This means that you end up paying more tax on everyday items like groceries and gas.
- Another disadvantage is that the state may not have as much money to fund important services, such as education and infrastructure. This can be a serious problem if the state is not well-managed.
Clearly, there are enough people moving to states without a personal income tax. I actually found the below two charts fascinating. Florida and Arizona are two states that most retirees have been moving to, due to the weather and low taxes. But what did surprise me, was the amount of people over 65 that were still choosing to live in two of the highest tax states of New York and California.
And how few people over age 65 were choosing to live in tax free states such as Nevada, Wyoming and Georgia. Perhaps many retirees are choosing the medical care and other services over the lower personal income taxes?
What does stand out in the second picture (moved to another state) shows a massive influx to FL, AZ and NV.
Tax Burdens to Consider: Property Taxes, Cost of Living, Individual Income Taxes, Sales Tax, and Services Provided
There are many tax burdens to consider when living in a state.
- Property taxes can be a big burden, especially if you own a lot of property or live in an expensive area.
- The cost of living in a state can also be a burden, as it can be expensive to live in a state with a high cost of living.
- Individual income taxes can also be a burden, as you may have to pay a lot of taxes if you earn a lot of money.
- Sales tax can also be a burden, as you may have to pay a lot of tax on items you purchase.
- Finally, the services provided by the state can be a burden, as you may have to pay for services that you do not use.
State Tax Collections Per Capital
Interested in taking a look at a cost of living calculator? This cost of living calculator can help you compare the overall cost of living between two different cities and states. This can help you see the difference in how much more or less you would have to pay to live in two different locations
CLICK HERE TO COMPARE THE COST OF LIVING
What are the top states for state and local taxes?
The same states consistently rank as the top few states each year. The top five states with the highest state and local tax combinations are:
> New York 12.7%
> California 13.3%
> Connecticut 12.6%
> New Jersey 10.7%
> Hawaii 11%
> Illinois 11.0%
> and Wisconsin 11.0%
What are the top five highest sales tax states?
Factoring the combination of state and average local sales tax, the top five highest total sales tax states as ranked by the Tax Foundation for 2021 are:
> Tennessee 9.55%
> Louisiana 9.52%
> Arkansas 9.51%
> Washington 9.23%
> Alabama 9.22%
What States Have No Income Tax?
Nine U.S. states do not have a broad-based state income tax:
> Alaska
> Florida
> Nevada
> New Hampshire
> South Dakota
> Tennessee
> Texas
> Washington
> and Wyoming.
New Hampshire currently taxes investment and interest income, but is phasing out those taxes in 2023. This will increase the number of states with no income tax to nine by 2027.
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Conclusion
Nine states have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. This means that residents of these states pay no personal income tax on their earnings. However, these states do have other types of taxes.
The lack of a personal income tax can be a major advantage for residents of these states. For example, it can mean more money in your pocket each month. And, if you are retired, it can mean a lower cost of living.
The lack of an income tax can also be a major attraction for businesses. Businesses may be more likely to locate in a state with no income tax because it means lower taxes for the business.
Of course, there are downsides to living in a state with no tax. One is that the tax burden may be shifted to other types of taxes, such as property taxes or sales taxes. This can be a disadvantage for people with low incomes or who don’t own property.
Another downside is that states with no income tax may have a higher cost of living. This is because the cost of goods and services is often higher in these states.
Overall, the decision of whether to move to a state with no income tax is a personal one. You will need to weigh the pros and cons of such a move to decide if it is right for you.
