The nine states with no state tax
If planning for your tax bill has left you wondering which places in the US have the lowest tax burdens, these nine states are the best place to start.
Summary
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not have state income tax.
New Hampshire and Washington do implement some taxes at state level.
To fund public works, many of these states impose higher taxes elsewhere, including property taxes and sales tax.
A financial advisor can help you come up with a tax plan that helps you keep more of your money.
Which states have no income tax?
Before we start the list, it’s important to note that two of the nine states named below do have some tax demands that the others don’t.
New Hampshire taxes interest and dividends at a state level, while Washington makes an exception to the "no state income tax" rule to tax capital gains income.
This list is presented in order from highest to lowest total tax burden (the percentage of your income you can expect, on average, to spend on taxes):
Washington (8.37%) – Washington has never had a state income tax. In 2010, residents voted against a proposition to introduce one. Still, the tax burden remains higher than in some other states because sales tax is very high, as are gas prices.
Texas (8.22%) – In Texas the Texas Constitution forbids state tax but earns back from its residents some of the money it needs to run via high sales and property taxes. Sales taxes in the state can be as high as 8.25 percent. Despite this, Texas continues to rank well in terms of affordable living on a nationwide scale.
Nevada (8.19%) – Nevada doesn’t charge state income tax. It earns a lot of necessary revenue for public services through tourism, particularly gambling taxes and fees (which contribute billions to the economy, especially in the famous city of Las Vegas). But, since other tax burdens in the state remain high, Nevada remains in the top half of this list.
South Dakota (7.12%) – The state tax in South Dakota was repealed in 1943. All attempts to reinstate it have, so far, failed. According to many, South Dakota is the most tax-friendly state – especially for retirees. Sales tax rates are some of the lowest in the US, and revenue is boosted through other forms of tax, examples include cigarettes and alcohol.
Florida (6.64%) – Florida’s income tax was repealed in 1855, but corporate and sales taxes still apply. Plus, since the ‘Sunshine State’ is known globally for its warm temperatures and is very popular with US citizens and tourists alike, property taxes are higher than in most other states. The tax burden in Florida is low, but the overall affordability rating of the state is also relatively low.
New Hampshire (6.41%) – New Hampshire is the only state in this list collecting taxes on dividends and interest, but no other personal income tax is charged in the state. For your reference, the investment income tax is 5 percent, and it impacts single taxpayers who earn over $2,400 from their investments in a single tax year. There’s no sales tax in New Hampshire, but there is an excise tax, which includes alcohol.
Wyoming (6.32%) – Wyoming has no state tax for individuals and no corporate state tax. It’s the second least-densely-populated state in the US, perfect if you’re searching for some peace and quiet. It’s important to note that Wyoming generates most of its income by levying property taxes and taxing businesses that produce natural resources, so this is something to research further if either is likely to impact you.
Tennessee (5.75%) – Tennessee doesn’t tax your wages. Until 2021, the state had a ‘Hall Income Tax’ imposed on income earned through interest and dividends, but this was repealed. Tennessee relies on high sales taxes to replace the state income tax and has the highest beer tax of any state.
Alaska (5.06%) – Alaska is a semi-exclave of the US. It charged income tax until as recently as 1980, before it was repealed. Alaska also has no sales tax, and the state government instead relies on excise and severance taxes for funding. Alaskans enjoy the lowest total tax burden in the 50 states.
Do these states tax capital gains?
As Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming don’t tax personal income, they do not impose capital gains tax.
However, Washington does impose the tax. The capital gains tax rate in Washington is up to 7%. However, revenue from real estate and retirement accounts is excluded from capital gains tax.
As individual capital gains tax rates vary by state, it’s important to be aware of how much your state charges alongside your federal tax obligation.
How much federal capital gains tax rates you pay will vary depending on how long you owned the asset before selling, your taxable income, and your filing status.
How do states with no tax make money?
When residents don’t have to pay state income tax, the money to fund public services and local government in that state must be found elsewhere. Understanding more about why you owe state taxes provides helpful context.
Specifics will differ from place to place, but you can generally expect higher taxes in other areas like sales, fuel, and property.
Get expert financial advice
If you’re thinking about heading to a place with no state income tax or otherwise wondering how to transform your finances and reduce your tax burden, the best first step is to get expert financial advice.
Unbiased can match you with a fiduciary financial advisor who can help you make the most of your money.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.