9 States That Don't Have an Income Tax

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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 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. (Tennessee eliminated its tax on investment income in 2021.)

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.

Other states use property taxes as a revenue stream. In 2018 (the latest year for which data is available), New Hampshire got nearly 64 percent of its revenue from property taxes — the highest rate of any state. In fact, three of the top five states that relied the most on property taxes have no income taxes. Alaska (45.6 percent) is second, and Texas (44 percent) is fourth. (New Jersey and Vermont, which have a state income tax, are third and fifth, respectively.)

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, too, collects significant revenue from so-called severance taxes, which are levies imposed on the extraction of natural resources.

If you want to be very tax-conscious, you should take into account all the types of taxes you may pay. 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.

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