9 States That Don't Have an Income Tax

Paychecks and retirement benefits are safe from state taxes if you live here

by John Waggoner, AARP, July 21, 2020 | Comments: 0

illustrated road sign says Tax Free, Next Exit and has an arrow pointing the way

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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 state 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. Tennessee and New Hampshire, however, tax interest and dividends, although Tennessee is phasing out its tax in 2021. New Hampshire is phasing out its interest and dividends tax by 2025, according to the Tax Foundation.

Locations Without State Income Taxes

united states map of states with no income tax alaska washington nevade wyoming texas south dakota and florida as well as states with no wage tax tennessee and new hampshire

Other state taxes fill the revenue void

States have a number of ways to raise revenue, and those states without state income taxes find different ways to pay for roads, schools and such. One typical source is sales taxes. Florida, for example, levies a 6 percent sales tax and the average locality tacks on 1.05 percent, according to the Tax Foundation, for a combined average of 7.05 percent. Tennessee, at 9.53 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. New Hampshire gets nearly 68 percent of its revenue from property taxes — the highest rate of any state. In fact, four of the top five states that rely the most of property taxes have no income taxes. Alaska (51.8 percent) is second, Texas (45.0 percent) is fourth and Wyoming (44.5 percent) is fifth. (New Jersey, which has a state income tax, is third.)

Alaska also gets a big chunk of income from oil — and it's not the only state without an income tax to do so. Wyoming also collects plenty of revenue from so-called severance taxes, which are taxes imposed on the extraction of natural resources.

If you want to be very tax-conscious, you should take into account all the different types of taxes you may pay. WalletHub rates New York state as having the highest total tax burden, equal to about 12.3 percent of income, followed by Hawaii at 11.5 percent. Alaska has the lowest tax burden at about 5.2 percent, with Delaware in second place at 5.5 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 things are hard to work out on a spreadsheet.