9 States With No Income Tax
Paychecks are safe from state taxes if you live here
Florida is the most popular state for retirees to move, and sun-kissed beaches aren’t the only reason. The Sunshine State has no income tax, which can be a powerful draw for people in states with high taxes (and cold winters).
If you’re looking for a place to retire, low income taxes are good, but no income taxes may be even better. 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. (To find the maximum income tax in your state, simply mouse over your state on the map above.)
Other state taxes fill the revenue void
“If you live in a state that has no income tax, usually you’re going to see a lighter [overall] tax burden — but that really depends on how much your state spends,” says Janelle Fritts, state policy analyst for the Tax Foundation.
South Dakota has very low taxes overall, relying on taxes on oil and mining companies. Washington residents have a relatively high burden because of sales taxes.
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You should take into account all the types of taxes you may pay: on income, property and sales. WalletHub rates New York state as having the highest total tax burden, equal to about 12.8 percent of income, followed by Hawaii, at 12.7 percent. Alaska has the lowest tax burden, at about 5.1 percent, with Tennessee in second place, at 5.8 percent.
Taxes aren't everything
The five states where retirees are moving to most are Florida, North Carolina, Michigan, Arizona and Georgia, indicating that the weather is as much a factor as the tax burden on retirees. “There is some overlap with very sunny states and good tax states,” Fritts says.
Is it worth considering taxes when deciding where to live in retirement? “Absolutely,” Fritts says. “The different tax burden is definitely going to make a big difference in your daily life.”
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.
Income tax isn’t the only tax
States with no income tax usually have higher taxes on other things, such as property or sales. Here’s a rundown.
Alaska: Municipalities levy sales taxes up to 9.5 percent; because of high food and utility prices, Alaska has the sixth-highest cost of living, according to the Missouri Economic Research and Information Center.
Florida: State sales tax is 6 percent; localities can tack on up to 2.5 percent, according to the Sales Tax Institute.
Nevada: State sales tax is 6.85 percent; localities can add up to 1.525 percent.
New Hampshire: No sales tax, but the average property tax is $4,738 a year — the third-highest in the nation, according to Rocket Mortgage.
South Dakota: Average property taxes are $2,857, and local sales taxes can be as high as 8 percent.
Tennessee: Combined state and local sales taxes can be as high as 9.75 percent.
Texas: Seventh-highest property taxes in the U.S., averaging $3,907 a year.
Washington: Combined state and local sales taxes can be as high as 10.6 percent.
Wyoming: 10th-lowest property tax rate at 0.61 percent, but sales taxes can be as much as 8 percent.
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.