Living in a state that does not tax income can be a major benefit, especially for high-income families. States that do not have a personal income tax do not tax them at all, enabling high earners to save much more of their earnings.
Financial Implications
The first two columns show the state’s total tax burden (state income taxes + sales and excise taxes + property taxes) as a percentage of personal income followed by the rank that the state holds (best to worst) among all 50 states. The third column shows the state’s affordability ranking, which combines both the cost of housing and cost of living, and the last column includes the state’s rank on the U.S. News & World Report “Best States to Live In” list.
States without income tax often raise other taxes to offset revenue loss. Consider the full tax picture before moving to a no-income-tax state.
States Without Income Tax
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Alaska relies on revenue from mineral lease rentals and royalties. It has the second-lowest tax burden. Florida relies on tourism revenue. Nevada’s economy is fueled by entertainment and hospitality. Alaska ranks low for tax burden and high for affordability, while Texas and New Hampshire have high property taxes. Wyoming relies on property, oil, sales and excise taxes for revenue. Wyoming scores above average for cost of living and housing affordability.
Considerations Before Moving
Having no state income tax can translate to lower revenue for individual states, which may result in lower spending on services. The benefit of moving to a state with no income tax is avoiding state income taxes on the money you earn. However, with no state income tax, Florida’s state government generates revenue from sales tax collections. Most states will generate revenue through a combination of income taxes, sales tax, property tax, and fees on goods like tobacco and alcohol.
There are nine states with no state income tax. While not having to pay state income tax can save you considerable money, it is only one piece of the financial picture. In Texas, a higher state sales tax is charged to make up for the lack of income tax.
By maximizing deductions, credits, investment accounts, and other forms of taxable income, it is possible to minimize your tax obligation effectively. So if you move to a state with no income tax but don’t make much money, the money you do make might not go as far.
Most Tax-Friendly States
Wyoming is the most tax-friendly state, with residents paying only $3,438 on average. Alaska offers the lowest total tax burden, costing taxpayers an average of 5.06% of their income. For a middle-class family, the tax burden difference between the highest-tax state (Illinois) and the lowest-tax state (Wyoming) is $11,340 per year.
Alaska does charge relatively high property taxes (the 11th highest in the U.S.), while the state sales tax rate in Wyoming is a modest 4%. The median property tax on a $300,000 home in Arizona is $1,932 a year, below the median property tax in most states.
When choosing a state with the lowest taxes, consider factors like local property tax in addition to state income tax. Alaska is one of the most tax-friendly places to live in the U.S. The most tax-friendly states, according to the 2018 Kiplinger Tax Map, include Alaska, Wyoming, South Dakota, Florida, Nevada, North Dakota, Delaware, Arizona, Mississippi, and Louisiana. Conversely, Minnesota is listed among the least tax-friendly states.