Even though most states levy some form of tax on personal income, eight states have no individual income tax of any kind as of 2023. In addition, New Hampshire does not tax wages and is gradually phasing out its tax on investment income from dividends and interest, which will disappear entirely after 2026.
Keep reading to see which other states don’t tax individual income and find out what you need to know about their other taxes.
What to Know About States Without Income Tax
States have different approaches to income taxes. Some institute a single-rate tax structure and others a graduated rate with several tax brackets based on income.
With these marginal rates, similar to federal income taxes, only income above each cutoff is taxed at the higher bracket. The highest marginal income tax rate in the U.S. is in California at 13.3%.
[READ: How to Choose Your Tax Filing Status.]
Income tax, however, represents only one piece of the overall state tax burden. Even in states with no income tax, sales and property taxes can still affect an area’s affordability.
“In every state, the state government and the local governments levy numerous taxes,” Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center, says.
“Individual income taxes often get a lot of attention but residents are also typically paying property taxes, general sales taxes, gas taxes, alcohol taxes, restaurant taxes, plus all sorts of what we call ‘charges’ like sewage and parking fees,” he adds.
Just because a state doesn’t levy an income tax doesn’t mean you’re paying low taxes.
“What’s important to remember is that your situation matters as much as the taxes,” Auxier says. “Are you married? Do you have kids? Are you retired? How much income do you earn? Do you earn wages or investment income?”
For example, states with no income tax may be particularly tax friendly for people with high incomes, but they may have other high taxes that affect lower-income people more.
“Generally speaking, state and local sales tax rates are higher in states with no income tax,” Auxier says.
The following states don’t tax income but their other taxes vary:
Alaska
Alaska is the most tax-friendly state in the country, with the lowest state and local effective tax rate of 4.6% in 2022, according to the Tax Foundation. Compare this with New York, which has the highest effective tax rate of 15.9%.
The oil-rich state repealed its personal income tax in 1980, and it doesn’t charge statewide sales tax. Local governments can levy their own sales taxes up to 7.5% but the average rate is just 1.76%, according to the Tax Foundation.
Alaska ranks 14th highest in the U.S. for median real estate taxes on an owner-occupied home, according to the Lincoln Institute of Land Policy.
[READ: Why Tax Refunds May Be Smaller in 2023.]
Florida
Making the move to Florida comes with multiple tax benefits. It doesn’t charge income, estate or inheritance taxes, and its state and local effective tax rate of 9.1% in 2022 was the 11th lowest in the country, according to the Tax Foundation.
Florida’s state sales tax rate is 6% and local governments add an average of 1.02% in sales taxes for a combined rate that ranks in the middle for the U.S. Property taxes are below average and residents 65 and older and veterans can receive extra breaks.
Nevada
Nevada doesn’t have a state income tax but its overall state and local effective tax rate of 9.6% in 2022 is only the 18th lowest in the country, according to the Tax Foundation.
It relies more on sales taxes to finance government activities — with a state sales tax of 6.85% and an average local sales tax rate of 1.38% — making its combined state and tax rate the 13th highest in the country in 2023, according to the Tax Foundation. The state also benefits from tourist sales tax revenue.
The median real estate taxes for an owner-occupied home are well below the U.S. average, according to the Lincoln Institute of Land Policy.
New Hampshire
New Hampshire doesn’t levy a wage and salary tax.
It does, however, currently tax interest and dividend income, unlike the other states on this list. That tax rate is 4% in 2023 and it’s going to decrease by 1 percentage point each year until it disappears entirely in 2027, when New Hampshire will be entirely income-tax free.
New Hampshire also has no statewide sales tax — it relies primarily on property taxes, and its per capita property tax is the third highest in the U.S., according to the Lincoln Institute of Land Policy.
New Hampshire’s state-local effective tax rate of 9.6% ranks 16th lowest in the country.
South Dakota
South Dakota is an attractive state from a financial perspective for many reasons: no state income tax, desirable trust laws and a relaxed standard for establishing residency.
Its statewide sales tax rate of 4.5% and local sales taxes averaging 1.90% is the 32nd highest in the country in 2023, according to the Tax Foundation.
South Dakota also has average per capita property taxes, and its state-local effective tax rate of 8.4% is the fourth lowest in the country.
Tennessee
As of 2021, Tennessee officially did away with taxes on investment income and interest, making it income-tax free. It also has some of the lowest per capita property taxes at $834, according to the Lincoln Institute for Land Policy.
A larger portion of its revenue comes from its statewide sales tax of 7% and average local sales taxes of 2.55%. Tennessee’s combined rate is the second highest in the country in 2023, according to the Tax Foundation.
It’s still a low-tax state overall, however, with a state-local effective tax rate of 7.6%, which is the third lowest in the U.S., according to the Tax Foundation.
[READ: How to Avoid IRS Tax Delays in 2023.]
Texas
Texas doesn’t have income tax; instead, it relies on sales and property taxes to fund state services. Its state sales tax rate of 6.25% plus average local sales taxes of 1.95% ranks 14th highest in the country, according to the Tax Foundation.
Texas ranks 12th highest in the country in per capita property taxes, according to the Lincoln Institute of Land Policy. Its state-local effective tax rate of 8.6% in 2022 is the sixth lowest in the country, according to the Tax Foundation.
Washington
Washington may appear desirable from a tax perspective but there’s a lot more than income taxes to consider. Of all the states without income taxes, Washington has the highest state-local effective tax rate of 10.7% in 2022 — the 30th lowest in the country, according to the Tax Foundation.
“Washington has the highest tax burden among states without a wage income tax,” Jared Walczak, vice president of state projects for the Tax Foundation, says.
“The state has recently adopted tax on high earners’ capital gains income, but even beyond that, it has a high-rate sales tax and a gross receipts tax that imposes significant burdens not only on Washington businesses but also on the state’s labor market and, indirectly, consumers. The state also has a fair share of wealthy residents who have significant tax burdens elsewhere,” he says.
Washington’s median real estate taxes for an owner-occupied home are the 13th highest in U.S., and its state sales tax rate of 6.5% — plus an average local tax rate of 2.36% — ranks sixth highest in the country.
Wyoming
One of the most tax-friendly states in the country, Wyoming has the second lowest state-local effective tax rate of 7.5% in 2022. Its state sales tax rate of 4% plus an average local sales tax rate of 1.36% ranks 44th highest in the country.
Wyoming relies on property taxes for a larger portion of its revenue but a significant part of those taxes come from mineral production, such as natural gas, coal and oil.
Its effective tax rate on a median-value, owner-occupied home ranks among the 10 lowest in the U.S., according to the Lincoln Institute of Land Policy. Wyoming also offers a property tax relief program for low-income homeowners.
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States With No Income Tax originally appeared on usnews.com
Update 02/28/23: This story was published at an earlier date and has been updated with new information.
