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. States without an income tax often make up for the lack of these revenues by raising various other taxes, including property taxes, sales taxes, and fuel taxes.
- Contributing factors include higher-than-average housing costs and a steep cost of living relative to median family incomes.
- Washington and South Dakota – which both received a B – are also without state income tax, making them desirable locations as well.
- However, it’s important to know moving states won’t instantly make you rich and that you might pay higher taxes for other things.
- These states traditionally will have different revenue plans to raise the revenue needed to run the state.
- The state sales tax rate ranges from 4.5% to 6.5%, depending on the location of the sale.
And Georgia allows taxpayers age 62 and older to exclude up to $35,000 of their retirement income, while those 65 and older can exclude $65,000. Retirees (or those approaching retirement) should delve further into a state’s tax benefits for retirees to get a more complete picture. As of 2023, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners. That said, the high costs of living and housing put Nevada closer to the bottom (34) when it comes to affordability.
Establishing Residency for Tax Purposes
With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. We believe everyone should be able to make financial decisions with confidence. Other states have partial or full exemptions for people who meet specific income requirements. For example, Kansas exempts Social Security income if your adjusted gross income (AGI) from all sources is $75,000 or less.
However, New Hampshire and Washington do still tax certain investment income. New Hampshire doesn’t tax W-2 income, and tax on investment income is being gradually phased out in 1 percentage point increments each year until it’s fully repealed for tax years after 2026. As of 2021, Tennessee fully repealed its state income tax on income earned from interest and dividends. Washington’s overall state and local tax burden is 10.7% as of 2022, which is relatively average. News & World Report’s affordability scale, with a high cost of living and high housing costs being the primary drivers.
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. To qualify for this tax, a city must have a permanent population of under 5,500 and these locations include Whitefish, Red Lodge, Big Sky, and West Yellowstone. Today, the amount of income tax you must pay is easily calculated in software used when preparing your annual individual tax return. We recommend using the services of a professional tax preparer, Enrolled Agent (EA), or Certified Public Accountant (CPA) to prepare your tax return. Using a tax professional will greatly increase the likelihood that your tax return is prepared accurately and that you are taking advantage of all the tax credits and deductions available for taxpayers.
Are you tired of seeing your hard-earned money disappear with every paycheck due to income tax? What if we told you there are nine US states with no income tax where you can make the most of your income, without the burden of personal income tax? Let’s dive in to explore these states and the advantages and disadvantages of living in them.
Pros and Cons of Living in a State with No Income Tax
In New Hampshire and Washington, while you won’t pay tax on most income, you may have to pay tax on certain investment earnings. Likewise, Tennessee doesn’t tax your paycheck, but it will get you in the checkout line. The state has one of the highest maximum state and local sales tax rates in the country at 9.55%, according to the Tax Foundation. But living in a state with no income tax doesn’t necessarily mean you’re getting off scot-free.
To learn more about how your state income tax rates work, visit the website of your state’s taxation and revenue department, or the Federation of Tax Administrators. To pay for all this, states primarily rely on tax revenue—including income taxes—and federal funds. Business owners can have a particularly tough time avoiding income taxes with an tax free states in us out-of-state move. This is because most states that levy an individual income tax apply it to all income sourced in the state — whether or not you’re living there. Find out about your state taxes—property taxes, tax rates and brackets, common forms, and much more. Still, everyone is subject to federal income taxes regardless of where you live.
New Hampshire: Phasing Out Investment Income Tax
This table does not take into consideration the taxing and spending of local governments within states, which can vary widely, and sometimes disproportionately with state tax burdens. Here’s a closer look at which states don’t have an income tax and how these states generate revenues in other ways. If you’re moving to a state with no income tax, you probably want to see how your budget will be affected.
If you’re a homeowner who currently lives in a state with relatively affordable property taxes, it may not be worth giving that up. And, importantly, living in a state with no income tax also means you might not be able to take full advantage of the state and local tax deduction if you itemize on your federal return. However, it is important to note that these states typically compensate for the lack of personal income tax revenue with higher https://1investing.in/ sales taxes, property taxes and/or gasoline taxes. Thus, one should consider the overall impact of such taxes before deciding whether or not to live in a state without an income tax. Sales tax helps make up for the lack of personal income tax in Washington, as the state has the fourth-highest sales tax rate in the country. That fact, combined with high housing costs, make it the 12th most expensive place to live, according to MERIC data.
Adding state income tax on top of that may be enough for some high earners to think about relocating to a state income tax-friendly state. With all things considered, Texas’ total tax burden is still in the bottom half of all states in the U.S. As the old saying goes, “There is no such thing as a free lunch.” And unless you’re Jeff Bezos, you’re probably paying state taxes when you get paid, or at tax time if you’re an entrepreneur. This money is used to fund things like public education, health care, state parks, economic development, state police, and so much more. State tax levels indicate both the tax burden and the services a state can afford to provide residents.
Generally, taxpayers must file a state income tax return annually to determine their tax obligations. Income tax is a tax imposed by a government on income generated by individuals and businesses. Nevada citizens pay 0% state income taxes, a decent share of sales taxes, and low property taxes. These state income tax rates apply to income earned in 2023, which is reported on tax returns filed in 2024. Regardless of whether there’s an income tax where you live, states still need resources to pay for things.
Florida is the most popular state for retirees who move, and sun-kissed beaches aren’t the only reason. The Sunshine State has no income tax, which can be a powerful draw for people in states with high taxes (and cold winters). Several conditions need to be met to reap the benefits of living in an income-tax-free state. Establishing domicile, or the intention of making a state your permanent home, is the most critical one. Rules and requirements vary from state to state, but generally, you must live in a place for at least half of the year, 183 days, to begin qualifying as a permanent resident.
There are nine states in the U.S. that do not collect personal income taxes. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, New Hampshire, and Washington. The first seven states have no income tax, while New Hampshire and Washington fall into a gray area. New Hampshire collects taxes on dividend and interest income but not earned income; Washington collects taxes on the capital gains of high earners. Living in a state without income tax can offer financial benefits, with the potential for significant savings on income taxes. Most states, and a number of municipal authorities, impose income taxes on individuals working or residing within their jurisdictions.
How much you pay depends on how much you earn, your filing status, and what deductions are available to you. The cost of living in Tennessee is relatively low, ranking as the 10th most affordable state. However, the state’s low tax burden may be offset by the high sales taxes on everyday items such as groceries and clothing. It’s important to consider the overall impact of these taxes on your finances when contemplating a move to Tennessee.
It used to be that you could claim a tax deduction for state income taxes you paid if you itemized on your federal return. The Tax Cuts and Jobs Act (TCJA) capped this deduction at $10,000 when it went into effect in 2018, and this $10,000 limit includes certain property taxes as well. This comprehensive analysis can help ensure that you’re making an informed decision based on the true cost of living in a state without income tax.
Which Are the Tax-Free States?
Nevada’s overall state and local tax burden is 9.6% as of 2022, which is on the high side. Most of the tax burden is driven by sales and excise tax, including groceries and alcohol, and taxes on hospitality and tourism-heavy industries such as hotels and gaming. Nevada is routinely ranked at the lower end of the scale when it comes to affordability. News & World Report positions the state overall at 34 out of 50, with a particular nod to high housing costs. The property tax rates, on the other hand, are among the lowest in the country.