9 States with No Income Taxes

Ben Franklin famously said that there are only two things certain in life: death and taxes. Taxes are payable in different ways and if there’s a way that pinches the most, it has to be through personal income. No one enjoys it when money is deducted from their paycheck at the end of the month, let alone in form of tax. What if you didn’t have to pay income tax? Actually, there are a number of states where you are not subjected to personal income taxation. You pay tax on other things like sales and properties but no one touches your personal income.

While this may seem appealing, you have to note that you may have to pay more on groceries, fuel, and other household needs. This is how the government of these states is able to compensate for not taxing personal income. Seven of these states (Washington, Wyoming, Florida, Alaska, South Dakota, Nevada, and Texas) have zero personal taxation while two of them (Tennessee and New Hampshire) have zero wage taxation. The two states only tax investment income and dividends. Let’s look at these states in detail.

  1. Washington

Washington has enjoyed zero state income taxation for quite a while. This has been a great thing to the locals, more so the wealthiest. The only tax worry in this state is sales tax. Lack of state income tax means that the state government has to compensate it through sales. Overall, Washington is among the top five states with high sales taxation system. Currently, the rate of sales taxes is about 6.5%. This is high considering that it can get to 9% in some cases. For someone in the business world, especially those who are starting, this may be a hard pill to swallow.

  1. Wyoming

Whenever you think of low tax states, you have to mention Wyoming. Wyoming not only does not tax personal income but it also does not tax corporate state income. So, both individual workers and corporates can enjoy life in Wyoming without worrying about income deductions. This is not all. The state doesn’t impose taxes on retirement income. Basically, it’s a great state to retire. The only taxation worry is on commercial properties and businesses that are designed to produce coal and other natural resources. But still, the property taxation at the moment is just about 0.62%.

  1. Florida

Since 1855, the Sunshine State has not taxed its residence on personal income. But as it’s almost expected, Florida impose heavy sales taxes. The rate is about 6%. Additionally, the state has a property taxing system where the rate is about 1%. Despite these taxes, Florida remains a popular choice when it comes to people who are considering retirement and vacation. The beach lifestyle, top amusement parks, balmy temperatures, and affordable living are some of the main contributing factors.

  1. Alaska

Since 1980, the State of Alaska has run as an income tax-free state. In addition to this, the state does not tax sales. It gets more interesting when you think about the Alaska Permanent Fund. The fund is set to give every Alaskan additional cash each year. So, the cost of living may be easier for the residents than in any other state. To compensate for this, Alaska imposes other taxes such as excise tax, gift tax, and high estate tax. Moreover, considering that earnings from the oil sector have declined of late, the legislators are considering to revive state income tax. This may take time, however.

  1. South Dakota

To make it more appealing for its residents and those who plan to settle here, South Dakota decided not to tax personal income as is the case of their northern counterpart. They are able to generate revenue by imposing excise duties on alcoholic drinks, cigarettes, and financial transactions. Unlike most states, they don’t have high sales and property taxes. So, the living costs are fair to most people. Overall, South Dakota is a state conducive for retirement.

  1. Nevada

There are strong suggestions that Nevada is only an income tax-free state because of gambling. It may be surprising but the state government gets most of its revenue from sales related to gambling. Of course, you also have to include tourism as one of the top revenue generators. With gambling and tourism alone, the state government is able to generate about $1 billion yearly. This is because the tax imposed on sales in these two sectors is about 6.85%. This is how Nevada has managed to break into the income tax-free states bracket.

  1. Texas

So many Texas residents constantly thank their old constitution for permanently disallowing personal income taxation. Instead of raising revenues through personal income taxation, Texas impose heavy taxes on sales. In some areas, the rate is as high as 8.25%. Furthermore, the state taxes properties heavily. Actually, Texas is one of the top four states with high property taxation systems. So, in as much as residents do not pay tax through their paycheck, Texas still finds a way to pay its bill even though some people get hurt financially in the process.

  1. Tennessee

As mentioned earlier, Tennessee only tax investments and dividends. The wage of the residents, however, is not taxed. There are suggestions that Tennessee will soon become the 8th member state which doesn’t allow personal income taxation. The taxation on dividends and investment used to be about 6% a few years back but it’s only 3% now. The rate has been on the decline and this is a sign that it may be 0% by 2020.

  1. New Hampshire

The other state that’s mentioned alongside Tennessee in the zero-wage tax bracket is New Hampshire. Like Tennessee, tax in New Hampshire is only imposed on dividends and investments. The advantage is that this applies to specific earnings. For example, it applies to individuals with yearly gains of $2,400 or more, married couples with yearly gains of $4,800 or more, and disabled or seniors (65 years and above) with yearly gains of $1,200 or more. Basically, those with little investments and those who enjoy little dividends can stay in New Hampshire without paying a dollar as income tax.

Closing Thought:

There is no doubt that the idea of living in a personal income tax-free state is a good one. But still, this doesn’t mean that the cost of living will be cheaper. You have to find out about other duties such as sales taxes and property taxes before considering relocation. If the rates are favorable, then you can go ahead and make the move. If you are looking for help sorting through your taxes, let the experts at Tax Crisis Institute help you today!

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