En español | Saving for retirement is important, but saving money in retirement is important, too. One possible way to save money is to move to a state with no income tax. For retirees, that can mean no state tax on Social Security benefits, pensions and other sources of retirement income.
Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — have no income taxes. New Hampshire, however, taxes interest and dividends, according to the Tax Foundation. It has passed legislation to begin phasing out that tax starting in 2024 and ending in 2027.
Other state taxes fill the revenue void
States have various ways to raise revenue, and those without state income taxes find different means to pay for roads, schools and other infrastructure. One typical source is sales taxes. Florida, for example, levies a 6 percent sales tax, and the average locality tacks on 1.08 percent, according to the Tax Foundation, for a combined average of 7.08 percent. Tennessee, at 9.55 percent, has the highest combined sales tax of any state in the U.S. Washington state levies a tax of 49.4 cents per gallon on gasoline, one of the highest rates in the nation.
Alaska has no statewide sales tax, although some localities have one. New Hampshire has no sales taxes at all.
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Other states use property taxes as a revenue stream. How much you pay in property taxes depends on the state tax rate and the value of your home. Homes tend to cost more in urban areas, so people living in cities tend to have the highest property tax bills. The six counties with the highest median property tax payments — half higher, half lower — all have bills exceeding $10,000 and all are near New York City: Bergen, Essex and Union counties in New Jersey, and Nassau, Rockland and Westchester counties in New York. These counties all have high median home values.
The states with the highest property tax rates are New Jersey (2.13 percent), Illinois (1.97 percent) and New Hampshire (1.89 percent), according to Quicken Loans. Those with the lowest are Louisiana (0.51 percent), Alabama (0.37 percent) and Hawaii (0.31 percent).
Bear in mind that many states offer breaks on property taxes for people 65 and older. AARP Foundation’s Property Tax-Aide can help you find out if you’re missing important tax relief.
If you want to be very tax-conscious, you should take into account all the types of taxes you may pay: income taxes, property taxes and sales taxes. WalletHub rates New York state as having the highest total tax burden, equal to about 12.8 percent of income, followed by Hawaii, at 12.2 percent. Alaska has the lowest tax burden, at about 5.1 percent, with Tennessee in second place, at 5.7 percent.
Taxes aren't everything
Granted, taxes are a big part of most people’s budgets. But you may have other reasons to move that don’t hinge on your tax bill. For example, you may need medical care in an area that has higher taxes. Or you may wish to live close to your children or grandchildren. Or you may simply like the view out your back window. Some priorities are hard to work out on a spreadsheet.
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger’s Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner’s USA Today investing column ran in dozens of newspapers for 25 years.