Tax Types

What You Need to Know About the Various States Without Income Tax

by
Elizabeth P Davies, CPA
on
5/12/2023
What You Need to Know About the Various States Without Income Tax

While it's difficult to get large groups of people to agree on just about anything these days, there are a few topics that have most people on the same page - and their hatred of paying income taxes is chief among them.

On the one hand, income taxes are important because they fund various programs and services that help make our lives better (or at least, that's how they're supposed to work). From social programs to funding for law enforcement and beyond, they can and often do make a difference. But still, it's understandable to want to keep as much of your hard-earned money as possible every year.

While it's not necessarily possible to escape the federal government and Uncle Sam, many people don't realize that there are a number of states that presently do not charge income taxes of any kind at that level. They're interesting situations for a number of reasons, all of which are worth a closer look.

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Credit: Getty Images

The States Without Income Tax: Breaking Things Down

As of 2023, the states that have no income tax include:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Wyoming

New Hampshire isn't on this list, but only technically. While those aforementioned states don't have an income tax of any kind, New Hampshire doesn't tax earned wages.

One of the most important things to keep in mind about all of this is that just because a state doesn't have income tax doesn't mean it isn't making up some of that funding in other ways. Nevada, for example, charges significant sin taxes on both alcohol and gambling. That, coupled with the high cost of living, make it actually one of the more expensive states to live in.

Florida is another situation where context matters. No, they don't charge income tax but they do have sales taxes and excise taxes that are higher than the rest of the country's average.

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Credit: Getty Images

All of this is to say that living in a state without income tax doesn't necessarily make for a cheaper experience once all things are considered. This is especially true if you're trying to choose a state to retire to, or are in another period of your life where you have to stretch the value of every dollar as far as it will go. As always, it's all relative.

The same basic concept is true in states that see a lot of visitors each year, like Washington. Not only do tourists and other travelers need to pay a higher sales tax on things like groceries and other goods, but they also have to deal with city and municipal sales tax rates as well. This means that the sales tax in the state at up to 9.29% depending on exactly where you're talking about.

One implication of living in a state without sales tax has to do with certain deductions that you might not be able to claim. You might not be able to take the SALT deduction, otherwise known as the State and Local Taxes deduction, for example. It's also been suggested that living in a state with no income tax actually puts more financial pressure on those who earn lower wages, due largely to many of the reasons outlined above.

None of this is to say that there are not advantages of living in a state without income tax, because there are. It's just that you need to consider the bigger picture when determining the best course of action to take with your own financial future.

If you'd like to find out more information about the various states without income tax, or if you'd like to discuss your own options to reduce taxes with a professional in a bit more detail, please don't hesitate to contact us today.

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Elizabeth P Davies, CPA

Elizabeth P Davies, CPA

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