States with No Income Tax

Living tax-free would be wonderful , right? At the end of the day, tax season – in addition to being stressful – reduces your bank account balance. According to the Bureau of Labor Statistics, the average family in the United States pays about $ 8,800 in taxes (and we’re only talking about federal income taxes).

To this amount, we would have to add others, such as state income taxes and, of course, some local taxes, such as sales taxes or the property tax itself .

Fortunately, you can reduce the total amount you leave to Uncle Sam by knowing which states don’t tax earnings and where they pay less tax overall . But, are there states that do not pay taxes in the USA? Well, we will find out below.

States that do not pay taxes in the USA

First of all, it must be clarified that all the states of the United States collect some type of taxes, without exception. THERE ARE NO STATES THAT DO NOT PAY TAXES IN THE USA. What is possible is to know which are the states that charge the least taxes to their residents and this is exactly what we will see next.

States that do not pay state income taxes in the USA

In the United States, there are 9 states that do not collect state income taxes . What does this mean? That while you will have to pay your federal taxes to the IRS – and others, such as sales taxes, property taxes, fuel taxes, etc. – your earnings will be tax-free at the state level .

What other benefit could there be to living in a tax-free state? Well, withdrawals from your 401 (k) retirement plan or the benefits you receive from Social Security will also be safe. Does that mean that living in these states is cheaper? Not necessarily. Like others, they have to collect money to maintain public schools, roads, hospitals, etc.

How do they do that? Usually, through the collection of local taxes that, in some cases, could have a higher rate if you compare them with those of other states in the country .

To help you see things more clearly, here are the 9 states that do not charge state income taxes and a couple of interesting facts about other applicable taxes. Thus, you will know if moving to one of them is -or not- a good idea:

1. Alaska

Alaska is the first state on the list. Looking at the big picture, it’s arguably one of the most tax-friendly places .

In addition to charging nothing (0%) for state income taxes , Alaska is one of only five states in the country with no state sales tax. But wait! This is at the state level. Localities can collect their own taxes under this concept (and, in fact, they do).

To give you an idea, sales tax in some Alaska locations can reach 7.5% . You will find the highest rates in those cities and towns that do not have a property tax. According to the Tax Foundation, the average rate in the state -in general- is 1.76%.

In Alaska, each locality sets the percentage to collect property taxes . To give you an idea, a homeowner would pay about $ 1,182 for every $ 100,000 of their home’s appraised value. This amount slightly exceeds the national average .

Fortunately, Alaska does not collect inheritance and gift taxes . So if you live in Alaska and you receive a great award or inheritance, congratulations! Uncle Sam won’t be able to put his claws on your money .

# 2 Florida

Florida, like Alaska, is quite tax-friendly. In addition to not collecting state income taxes, you waive the collection of estate and gift taxes .

Property taxes in Florida have an average value . Sunshine state pays about $ 830 for every $ 100,000 of appraised property values. This figure keeps the state within the national average, that is, it is neither a very high nor a very low figure.

When it comes to sales taxes, Florida has a 6% state rate. By law, localities can add an additional 2.5%, bringing the overall average rate in the state to 7.08% . However:

  • Groceries are exempt from sales tax (plus point).
  • Prescription drugs are also exempt from sales tax.

Clothing does pay sales taxes, as do motor vehicles, which, depending on the price, may also have to pay additional taxes on the first $ 5,000 of the purchase price .

# 3 Nevada

In Nevada , no state income taxes or inheritance and gift taxes are collected . So far, it looks like the other states on the list. Let’s see how it behaves with the other taxes:

When it comes to property taxes, you will win! And, Nevada is one of the states with the lowest property tax rates in the United States . In fact, you should expect to pay about $ 530 for every $ 100,000 of your home’s appraised value .

Does Nevada collect estate and gift taxes? Fortunately, no . There are no inheritance or gift taxes, which is quite a significant addition.

Now, the thing is not so simple in terms of sales tax. Nevada’s state rate stands at 6.85%. Different localities in the state can add up to 1.53% to this percentage, bringing the average combined rate for sales to 8.23% . Although it is hard for us to say, this is a fairly high percentage when compared to the national average.

However, not everything is bad in Nevada. Fuels and prescription drugs are exempt from excise taxes . So maybe you can still save a little.

# 4 New Hampshire

Even though New Hampshire waives taxing profits at the state level, there is a 5% tax on dividends and interest earned in excess of $ 2,400 – on individual returns – or $ 4,800 on joint returns.

Are there sales taxes in New Hampshire? No . There are no state or local sales taxes (plus point). There are also no inheritance and gift taxes , but the same is not true for property taxes.

To give you an idea, homeowners in New Hampshire should expect to pay about $ 2,050 for every $ 100,000 of property’s appraised value, making this state one of the most expensive in the country for homeowners . (Third place)

# 5 South Dakota

South Dakota does not collect income tax. It also does not collect inheritance or gift taxes . But it does work with property and sales taxes. Let’s see how it behaves:

  • When it comes to property taxes, it averages $ 1,219 for every $ 100,000 of the home’s appraised value . It is not as high as New Hampshire, but it is above the national average.
  • For sales taxes, the state rate is 4.5% (not bad) , but localities can add up to an additional 4.5%. However, the state average rate is not as high as you would think: we are talking about 6.4%.

Of course: you should keep in mind that while many states exclude groceries from the sales tax, in South Dakota this does not happen . What they did eliminate is the excise tax on prescription drugs and motor vehicles, which, despite having this advantage, have a special 4% tax .

# 6 Tennessee

Tennessee does not collect state income taxes, but it does have a special tax on investment earnings . Dividends and other financial interests are subject to a special rate of 1%. Mind you, the first $ 1,250 in dividend income ($ 2,500 for joint returns) is tax-free. But there are certain caveats:

  • Taxpayers who are 100 years old or older are exempt from paying tax on dividends.
  • 2020 was the last year with the dividend tax . Therefore, this special rate will not apply to earnings obtained from financial investments in 2021.

For sales taxes, the Tennessee state rate is 7% plus a maximum of 2.75% on items priced over $ 1,600. To this should be added that localities can also set an additional rate, which is 2.75%. This gives us a general combined rate for the state of 9.75%; one of the highest in the country in terms of consumption taxes . Let’s see the breakdown:

  • Groceries are taxable in Tennessee (4% statewide plus any other rate promulgated by the locality.
  • Clothing is also subject to sales tax.
  • Prescription drugs are exempt from the application of this tax.
  • Motorized vehicles are subject to a 7% base rate plus 2.75% applied to the amount between $ 1,600 and $ 3,200 of the sale price; this in addition to local taxes.

When it comes to property taxes, Tennessee is below the national average . We’re talking about $ 636 for every $ 100,000 of appraised home value. On inheritance and gifts, Tennessee does not collect state taxes.

# 7 Texas

We are going to evaluate the state tax system of one of the largest states in the country.In Texas , there is no income tax. Nor are inheritance or gift taxes levied . When it comes to property, Texas is one of the most expensive states in the country at $ 1,692 for every $ 100,000 of appraised home value.

As for the sales tax, the state rate is 6.25% and localities can apply an addition of up to 2%. This leaves us with a combined rate of 8.19% on consumption , a percentage that is well above the average for the United States.

Fortunately, groceries and prescription drugs are exempt from this tax , but we cannot say the same for clothing and motor vehicles.

# 8 Washington

Washington is a tax-friendly state, despite the fact that it does tax inheritance and gift . Let’s see the breakdown:

  • As we said earlier, Washington is one of only nine states that do not collect state income taxes .
  • As for sales taxes, the state rate is set at 6.5%. Each locality can add up to an additional 4%, which leaves us with a state average of 9.23% (the fourth highest rate in the country for consumption) .
  • Groceries and prescription drugs are exempt from sales tax . However, clothing is taxable. There are also taxes for cars and other motorized vehicles . In this case, the ordinary rate of 6.5% plus an additional 0.3% is applied.
  • While Washington collects inheritance and gift taxes, it only does so if the figure exceeds $ 2,193 million ; a limit amount that is adjusted every year for inflation. In this case, the tax rates are quite high. We are talking about 10-20%.

# 9 Wyoming

The last state to not collect state income taxes is Wyoming (which also does not collect estate and gift taxes). As for sales taxes, the state rate is not that high (4%), but localities can add up to an additional 2%; which sets the average consumption at 5.33% . Even so, this percentage is the eighth lowest in the country. (Groceries and prescription drugs are exempt from this tax)

Let’s move on to property taxes. In Wyoming, the average property tax payment amount is $ 575 for every $ 100,000 of appraised home value , putting it 10th lowest in the country.

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