If you’re reading this, you probably care about your paycheck. And if you get a paycheck, you likely pay income tax. But did you know some states don’t have income tax at all? Before you pack your bags and say goodbye to the IRS like an ex you’re ghosting, here’s what you need to know to decide if it’s worth the move.
Here are Five Fast Facts on states with no income tax:
- 👀 Location, Location, Location - There are currently seven states that don’t have any income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington State, and Wyoming. Two more are close: New Hampshire taxes investment earnings but not wages, and Tennessee is income-tax-free, even on investments starting this year. So, grab your snow boots or sunscreen, depending on your pick.
- 👍 For The Win - The obvious win? No income tax means more of your hard-earned money stays with you. It’s like getting a raise without asking. Plus, you’ll only need to file a federal return—less hassle with Uncle Sam. Just don’t blow the savings on gas station snacks or late-night Amazon sprees.
- ✋ Not So Fast - It’s not all puppy dogs and rainbows, though. States that don’t have income tax still have to fund themselves somehow, and they usually do it through other taxes. For example, Washington State has a 7% capital gains for anything over $250k and one of the highest gas tax rates in the nation (over $.49 per gallon). Tennessee’s got the highest sales tax rate in the country (9.53%), and Alaska has a property tax rate of almost 52%. So while you’re not paying taxes on your income, you’re probably paying it on something else.
- 🤔 Less Is More…Or Is Less Actually Less? - Another thing that is often less in states without income tax is public services like infrastructure and education. South Dakota spends the least on education of any state in the Midwest, and Florida, Nevada, Tennessee, and Texas all spend less per pupil than the national average.
- 📝 The Lay Of The Land - If you are considering a move to a state without income tax, make sure you fully understand what you’re getting into. Most of these states don’t tax retirement income so if you’re in your golden years you might make your dollar stretch further. But, if you’re planning to buy a huge house but not bring in much money, then higher property taxes may eat up whatever you save on income taxes. If you’re a student with a part time job in a high sales tax state, then your income is low but the sales tax on every purchase you make will probably work out badly for you.
🔥Bottom line: Cost of living matters—a lot. If moving to a no-income-tax state means higher prices elsewhere, are you really saving? And remember, you’ll still pay federal income tax, which is often higher than state taxes for most people anyway. As the saying goes, there’s no such thing as a free lunch—unless you crash your neighbor’s barbecue.
No income tax can be a great perk, but there’s more to the story. Do your homework, consult a tax pro, and make sure the numbers add up before making a big move. And if you do move, don’t forget to send your old neighbors a postcard—or at least a funny meme.
Do you live in a state without income tax? What’s been your experience with it?
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