Are you thinking about moving to a state without income tax? You’re not alone. According to Rocket Pro, 8.6% of the US population relocated in 2022, marking a 4% increase from the previous year—with 67% of those moves being interstate. The appeal? Keeping more of your hard-earned money.
But while income-tax-free states might seem like financial havens, there are trade-offs, including higher property taxes, sales taxes, and cost of living. So, is moving really worth it? In this article, explore the nine states with no income tax, their pros and cons, and whether relocation makes financial sense for you.
Which States Have No Income Tax?
If you're looking to lower your overall tax burden, you might consider moving to a state without an income tax. Currently, nine states in the US don’t have an income tax on individual income:
- Alaska
- Florida
- Nevada
- New Hampshire (only taxed interest and dividend income until 2025, now fully tax-free)
- South Dakota
- Tennessee
- Texas
- Washington (taxes capital gains income over $270,000 at a 7% tax rate)
- Wyoming
While these tax-free states don’t have income taxes, this doesn’t mean you won’t pay significant state and local tax in other forms. Many states without an income tax increase sales tax rates, property tax rates, and excise tax rates to generate tax revenue.
How Do These States Make Up for Lost Revenue?
The lack of income tax revenue in these states means they rely on other tax systems to maintain public services. Instead of individual income tax, they often collect:
1. Higher Sales Tax Rates
- Washington's combined state and local sales tax rate is 9.38%, one of the highest in the country.
- Tennessee has the highest state sales tax rate at 7%, with local taxes pushing it up to 9.75% in some areas.
- Nevada relies heavily on tourism taxes, bringing its state and local sales tax rate to 8.23%.
2. High Property Tax Rates
Without individual income tax revenue, many of these states increase property tax rates:
- Texas has an average property tax rate of 1.7%, making it one of the highest property tax states in the US
- New Hampshire has an even higher property tax rate of 1.93%, despite having no state sales tax.
- Wyoming and Nevada offer lower property tax rates than other states that don’t have an income tax.
3. Industry-Based Taxes
Some tax-free states rely on specific industries to generate tax revenue:
- Nevada imposes heavy excise taxes on gambling and tourism.
- Alaska and Wyoming tax oil, gas, and mineral production instead of personal income tax.
- South Dakota collects significant corporate income tax from its banking and finance sector.
4. Excise Taxes and Fees
These states often raise excise tax rates on gas, alcohol, and tobacco to make up for the lack of income tax revenue.
- Washington has some of the highest excise tax rates on gasoline and liquor in the US
- Tennessee heavily taxes alcohol and fuel to compensate for no state income tax.
What’s the Real Cost of Living in a State Without an Income Tax?
- Lower tax burden on earned income
- Higher sales tax and excise tax rates increase everyday costs
- State and local taxes on property, businesses, and tourism can be substantial
If you're a business owner, moving to a state that doesn’t have income tax might not be as beneficial as it seems. Some states, like Texas, impose a franchise tax instead of a corporate income tax, while Nevada and Wyoming have no corporate income tax at all.
Further Reading: Understand your state's income tax laws
Is It Worth Moving to a State Without Income Tax?
1. Will You Really Save Money?
The benefit of no individual income tax depends on how much you’ll pay in other taxes. Here’s how overall tax burden compares in different states:
Moving from California (which has a top state income tax rate of 13.3%) to Texas could save you thousands in individual income tax, but you might end up paying more in property taxes.
2. What About Retirement?
Some states that don’t have income tax are better for retirees than others.
- Best for retirement income savings: Florida and Tennessee (no state tax on Social Security, 401(k), or pension income).
- Worst for retirees: New Hampshire and Washington (due to high property tax rates and capital gains tax on investment income).
3. Is Your Job Remote or Industry-Dependent?
- Remote workers benefit the most from living in a state without an income tax, especially if they earn a high income and can work from anywhere.
- If your industry is concentrated in high-tax states (e.g., tech in California, finance in New York), moving to a tax-free state might not be practical.
Further Reading: Plan your retirement wisely by seeking to maximize income
9 No-Income-Tax States
1. Texas: No Income Tax, But High Property Taxes
- Lower tax on earned income
- Strong economy in tech, healthcare, and oil
- High property tax rate (1.7%)
- Franchise tax on businesses
2. Florida: Great for Retirees, But Expensive
- No tax on retirement income
- Lower tax burden on businesses
- High property insurance rates
- Tourist-driven economy creates market volatility
3. Washington: No Income Tax, But Capital Gains Tax
- No personal income tax or corporate income tax
- Tech-friendly business environment
- 7% capital gains tax
- High state and local sales tax rates
4. Tennessee: Low Cost of Living, High Sales Tax
- No tax on earned income
- Affordable housing
- Highest combined state and local sales tax in the US (9.75%)
- Lower public school funding
5. Nevada: No Income Tax, But High Housing Costs
- No corporate income tax or personal income tax
- Business-friendly tax system
- 8.23% state and local sales tax rate
- High cost of living in Las Vegas
6. Alaska: No Income Tax, But High Living Costs
- No state sales tax or income tax
- Annual oil dividend (~$1,600 in 2024)
- Highest cost of living in the US
- Limited healthcare access
7. Wyoming: Low Taxes, But Sparse Job Market
- No state income tax or corporate tax
- Low property tax rates
- Limited job opportunities
- Harsh winters
8. South Dakota: Affordable, But Harsh Winters
- No individual or corporate income tax
- Low cost of living
- Extreme winters
- Limited healthcare options
9. New Hampshire: No Sales Tax, But High Property Taxes
- No tax on earned income or sales tax
- Strong economy
- 1.93% property tax rate—the highest in the country
- Expensive cost of living
If you're considering moving to a state without an income tax, consult a tax expert before making the move—your overall tax bill might not be as low as you think.
Further Reading: Discover how states with no income tax impacts your tax bill
Key Takeaways
- Living in states with no income tax doesn’t mean a lower overall tax—higher property taxes, sales taxes, and excise taxes can offset savings (Tax Foundation).
- Among states with no income tax, Alaska, Florida, and Texas offer lower overall tax burdens, but New Hampshire and Washington tax interest income and capital gains.
- Tax preparation is still required—you must file a federal tax return, and deductions like the earned income tax credit still apply (Tax Cuts and Jobs Act rules apply).
- Using tax software can help navigate tax season, ensuring you maximize tax credits and deductions while complying with schedules except for earned income.
- The tax rate of 5.44 percent applies to certain dividend and interest income in some states, even among the 9 states with no income tax—check local tax laws before moving.
How can Taxfyle help?
Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.
At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.
