If you are tired of taking taxes out of your hard-earned money, it may surprise you to learn that there are nine states that have no income tax requirements.
By living in one of these states, you can hold on to more of your earnings. However, you may be liable to pay other taxes, such as sales taxes and property taxes. These states may also have an overall higher cost of living.
Here are the nine states that currently have no income tax requirements as of 2022:
Back in 1980, Alaska repealed its income tax and decided to generate revenue from the state’s oil and gas production at higher rates instead.
While Alaska has the lowest tax burden in the U.S, at 5.10% of total income, it also has a high cost of living to take into consideration. The remote location also means that it may not be suitable for everyone looking to make a new state their home.
Instead of generating most of its revenue through income tax, the sunny state of Florida generates most of its revenue from state and local sales tax, as well as tuition fees through the state’s universities. Currently, the total tax burden for Florida is 6.97% when taking property tax and sales tax into account.
Nevada is another state without any income tax. However, it has a state and local tax burden of 8.23% of income and a higher cost of living than the previous states on this list.
The state makes a lot of its revenue from high sales taxes on items such as groceries, alcohol, and gambling.
4. New Hampshire
The way New Hampshire’s tax works is slightly different from other states. The state has a total tax burden of 6.84%, making it one of the more affordable states with no income tax.
However, in New Hampshire, dividends and interest are taxed — something that will change in the near future. Legislation was passed to phase out investment income tax by 1% per year over the next five years, with it being eradicated by 2027.
The state also does not have a state sales tax but does levy excise taxes on goods such as alcohol.
5. South Dakota
South Dakota makes most of its revenue through taxation on goods such as alcohol and cigarettes and above-average property taxes.
In total, residents are expected to pay 7.37% of their personal income in taxes, making it one of the more affordable states.
The total tax burden in the state of Tennessee is currently 5.74%, the second-lowest in the nation after Alaska. In 2016, legislation was passed to lower taxes on unearned income by 1% every year until it was eradicated in 2021.
Instead of taxing income, Tennessee has a high sales tax, especially on taxes on beer, and currently has the highest beer tax of any state.
Like many other states on this list, Texas makes a lot of its revenue from sales and excise taxes rather than income tax. In some areas of Texas, sales tax can be as high as 8.25%. Another high tax in Texas is property tax, bringing the overall total tax burden to 8.19%.
While Washington has no income tax for most people, it does levy a state capital gains tax on higher earners. Washington residents are also expected to pay high excise and sales tax and have to deal with a high cost of living on average.
The total tax burden is estimated to be 8.34%, thanks to the high sales and excise taxes.
Finally, Wyoming is one of the more affordable states to live in, with no income tax and a total tax burden of 6.14%. There is no need for residents to pay personal or corporate income taxes or retirement income taxes in Wyoming.
It also has comparatively low sales tax rates. To make up for its loss of income tax revenue, Wyoming relies largely on its natural resources, mostly oil sales.
Other states with lower taxes
Income tax is just one consideration. There are also states that include no sales tax to make the cost of living more affordable.
There are currently five states that do not require you to pay sales tax on goods or services. They include:
However, in some cases, such as Alaska, you will find that many of its municipalities impose a local sales tax.
Most states also have tax-free weekends, which make buying goods and services much more affordable. These weekends typically occur during the summer and can be found in many states.
Other taxes to take into account regarding the cost of living include property taxes and corporate tax rates.
Unfortunately, there are no states without property taxes, but some of the lowest rates can be found in states such as Hawaii (0.35%), Alabama (0.40%), Louisiana (0.52%), Wyoming (0.55%), and West Virginia (0.55%).
For those with businesses, another consideration is corporate income tax. There are just three states without corporate income tax — Nevada, South Dakota, and Wyoming — all of which require no individual income tax either.
Consider more than just income tax
As you can see, income tax is just one thing to consider. Other affordability considerations include the overall cost of living in each state, including salaries, house prices, goods and services prices, and other types of tax.
Just because a state has no income tax does not mean that it is automatically a less expensive option to live in once sales tax and other factors are taken into account.
For example, according to Investopedia, Alaska has the lowest tax burden but it still comes 47th in the nation for overall cost of living affordability once house prices, salaries, and goods and service prices are taken into account.
This means that anyone looking to move to another state will have to weigh the cost of income tax versus property, sales, and corporate taxes and the overall cost of living.