States with No Income Tax
The states with no income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Other states like New Hampshire and Tennessee don’t tax wages. Despite having no income tax, these states may not necessarily be the most affordable places to live due to other types of taxes and costs.
Sales and Property Taxes
As of 2023, five states have no sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Purchasing big-ticket items in these states can be more affordable, but it’s important to note that some states exempt essential items or certain buyers from sales taxes. Property taxes highly vary by state, with Hawaii offering the lowest and New Jersey the highest rates. Some states, like Kansas, provide exemptions for specific groups, such as seniors with incomes below $75,000.
Overall Tax Burden and Affordability
While some states do not levy a state income tax, they may raise funds through higher sales, property, or excise taxes. The overall tax burden—a measure of how much income goes toward taxes—can vary widely across states with and without income taxes.
For businesses, the absence of state income tax can be an attractive factor when choosing a state to operate in. However, individuals might find that higher sales and property taxes could offset the benefits of living in a state with no income tax.
Tax exemptions for military pensions are available in many states, with 34 states not taxing military pensions and nine of those also exempting income tax or only taxing dividends and interest.
Summary and Considerations
It’s crucial to consider the complete tax picture, including sales tax, property tax, and overall affordability, when evaluating the cost of living in states with no income tax. Consulting a tax professional can provide insights tailored to your individual circumstances, especially when considering relocation.