Raise your hand if you like paying taxes. Anyone? Anyone? Bueller? Bueller?
Even though most folks would rather get a root canal than pay their income taxes, that’s never stopped the government from trying to get their hands on your hard-earned money—and we’re not just talking about the federal government.
Most state governments are more than happy to tax your income on top of what you already owe Uncle Sam. What gives?!
However, there are a handful of states with no state income tax at all—nine of them, to be exact. Let’s take some time to learn more about them, shall we?
States With No Income Tax
From the sunny beaches of South Florida to the glaciers of Alaska, no-income-tax states are scattered across the country and come in all shapes and sizes. Here are the nine states that don’t have a state income tax:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
There is one caveat: New Hampshire does tax interest and dividends from investments . . . but that tax is being phased out and will be completely gone in 2027.1 (Tennessee used to tax investment income, but that tax is now history—it was eliminated at the start of 2021).2
Let’s take a closer look at the states that don’t have an income tax, and the pros and cons of living in one of these states.
Alaska
Not only does “The Last Frontier” have no income tax, it’s also one of a handful of states that doesn’t have a sales tax, either. It’s no surprise, then, that Alaskans enjoy the lowest tax burden in the country.3
Keep in mind, though, that Alaska’s cost of living is one of the highest in the country, thanks in part to its remote location and how hard it is to get things to and from Alaska.4 So while the low taxes are a nice consolation prize, you might be paying more in other ways to live there.
Florida
Sunshine, beaches, and no state income tax make Florida one of the top retirement destinations in the U.S. And even though sales and property taxes in Florida are above the national average, the overall tax burden for Floridians is still one of the lowest in the country.5
Nevada
On top of an above-average sales tax rate, Nevada also leans heavily on revenue collected from “sin taxes” on alcohol and gambling as well as taxes imposed on casinos and hotels.
That means that the millions of out-of-town tourists who try their luck at the craps tables in Las Vegas and travel around the state end up footing most of the bill. That gives a whole new meaning to the phrase “What happens in Vegas, stays in Vegas.”
New Hampshire
While New Hampshire doesn’t tax earned income, the state currently does tax dividends and interest from investments. This makes New Hampshire the only state on this list that requires an asterisk when we call it a no-income-tax state. But New Hampshire's state government passed legislation to phase out the investment income tax by 1% each year for the next five years until it disappears in 2027.6
But heads up if you plan on buying property in New Hampshire. The Granite State has the third-highest property tax in the country (1.89%).7
South Dakota
Like many of its no-income-tax-state cousins, cigarette and alcohol taxes are South Dakota’s bread and butter when it comes to collecting tax revenue. And while the state also has property tax rates above the national average, South Dakotans can take comfort in having a combined state-local sales tax rate that is lower than many other states (6.4%).8
Tennessee
The Volunteer State joined the ranks of “true” no-income-tax states at the start of 2021 when it said bon voyage to the Hall Tax, which taxed interest and dividends from stocks and bonds.9 The state hopes that eliminating the tax on investment income will attract more retirees to the state.
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To make up for lost revenue from not having an income tax, Tennessee charges the highest combined sales tax rate (9.55%) in the country.10 Still, the state's total tax burden is just 7.0%, the third lowest in the nation.11
Texas
Do you want to know how much the Lone Star State hates personal income taxes? Texans overwhelmingly voted to ban income taxes, and that ban is now written into the state’s constitution.12 And while homeowners in Texas pay one of the highest property tax rates in the country, the state still boasts one of the lowest tax burdens in the U.S.13
Washington
Despite having no income tax, Washington’s higher-than-average cost of living and sky-high housing prices make the Evergreen State one of the least affordable states in the U.S. Washingtonians also pay at the pump since gasoline is more expensive in Washington than in most other states (thanks in part to having one of the highest gasoline tax rates in the country) in addition to high sales taxes.14,15
Wyoming
You’ll be hard-pressed to find a state that is more tax friendly than Wyoming. The Cowboy State has no personal or corporate state income taxes and very low property and sales taxes. And with no taxes on retirement income, you can ride off into the sunset without having to worry much about taxes.
Like Alaska, Wyoming taxes natural resources like oil, natural gas and coal to make up for the lack of income tax revenue—which is great during boom times but could strain the state’s budget in down years.16
The Pros and Cons of Living in a State With No Income Tax
The benefits of living in a no-income-tax state are kind of obvious. First of all, you get to keep more of your paycheck, and that’s always a win! Not to mention that you’ll save a little money when you file your taxes because you won’t have to file a state income tax return on top of your federal return.
Second, many states with no income tax boast a tax-friendly climate that creates jobs and attracts new residents from all over the country.
It’s no surprise, then, that Americans have been flocking to most of the no-income-tax states over the past decade. According to data from the U.S. Census Bureau, more than 3.2 million Americans on net moved to one of the nine states without an income tax between 2010 and 2019.17
And if you are retired or getting ready to retire soon, you won’t have to pay any state income taxes on withdrawals from your 401(k) or IRA, pension payouts, or on your Social Security benefits in most no-income-tax states. This makes some of these states (especially Florida) very appealing places to spend your golden years!
But before you pack all your worldly possessions into a U-Haul and take up residence in one of these states, it’s important to remember that states without an income tax aren’t always more affordable to live in. Washington and Alaska, for example, are among the most expensive states to live in.
And while you might not be paying taxes on your income, you’ll probably be paying other types of taxes in these states. After all, states like Wyoming and South Dakota still have to fund schools and build roads! Since these states can’t make money from income taxes, they still need to make up for that lost revenue somehow.
For example, some states and counties will charge higher sales and property taxes instead. Homeowners in New Hampshire and Texas pay some of the highest property taxes while Tennesseans pay the highest combined state and local sales tax rate in the country.18,19
Other states have excise taxes that are charged on certain goods and services, like gas, alcohol or tobacco. Speaking of Tennessee, the Volunteer State has the highest beer tax in the country, charging a hefty $1.29 per gallon—maybe that’s why the state’s favorite drink is whiskey!20
In other cases, states with no income tax don’t have the same ability to invest in services like education, infrastructure or health care as other states. These are all factors to keep in mind before moving to a no-income-tax state.
Talk With a Tax Pro
As you can see, no two no-income-tax states are exactly alike and living in each state comes with its own benefits and drawbacks.
Maybe you’re trying to decide whether or not to take a job opportunity in a no-income-tax state. Or maybe you’re a few years away from retirement and wondering how moving to a state like Florida or Tennessee would impact your retirement savings.
No matter who you are, it’s a good idea to talk to a tax professional like one of our RamseyTrusted Endorsed Local Providers (ELPs). A qualified tax pro can help walk you through the tax implications of living in a no-income-tax state, and help you get the information you need to make the decision for you and your family.
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Ramsey