Ever wonder why some people are SO eager to move to Florida or Texas? Besides the weather, there's a huge financial reason: no state income tax! While federal income tax is the same no matter where you live, state income tax can vary wildly—from zero percent to over 13% in some states.
If you're thinking about
relocating, planning a move for retirement, or just curious about how state
taxes work, you're in the right place. Let's break down everything you need to
know about state income tax and figure out if living in a no-income-tax state
makes sense for you.
The 9 States With No Income Tax
As of 2026, nine states don't
collect any state income tax. Let me introduce you to the tax-free nine:
1.
Alaska
2.
Florida
3.
Nevada
4.
South Dakota
5.
Tennessee
6.
Texas
7.
Washington
8.
Wyoming
9.
New Hampshire (no tax on wages, but taxes interest and
dividends)
Before you start packing your
bags for Texas, though, let me explain something important: NO state income tax
doesn't mean NO taxes. These states make up the revenue in other ways—higher
sales taxes, property taxes, or other fees. More on that in a minute!
How State Income Tax Works
State income tax is basically a
mini version of federal income tax. You file a state tax return (in addition to
your federal return), and the state takes a percentage of your income. But
unlike the federal government, each state sets its own rules.
Some states have a flat tax
rate—everyone pays the same percentage regardless of income. Others have
progressive tax systems where higher earners pay higher rates (just like
federal taxes). And then there are those lucky nine states that don't tax
income at all!
States With the Highest Income Tax Rates
On the flip side, some states
have pretty steep income tax rates. If you live in one of these states, you're
probably very aware of it come tax time:
•
California: Top rate of 13.3% (highest in the
nation)
•
Hawaii: Top rate of 11%
•
New York: Top rate of 10.9%
•
New Jersey: Top rate of 10.75%
•
Oregon: Top rate of 9.9%
Now, these top rates only apply
to high earners. If you're making $50,000 in California, you're not paying
anywhere near 13.3%. But still, state income tax can take a significant bite
out of your paycheck in these states.
The Hidden Costs of Tax-Free States
Here's the reality check:
states without income tax need to raise money somehow. They can't just provide
roads, schools, and police services for free! So they typically charge more in
other areas:
Higher Sales Taxes
States without income tax often
have higher sales taxes. Tennessee, for example, has a combined state and local
sales tax rate over 9% in many areas. That adds up fast when you're buying a
car, furniture, or even groceries!
Higher Property Taxes
Texas is famous for having no
income tax, but it also has some of the highest property tax rates in the
country. If you own a home in Texas, you might be paying 2-3% of your home's
value annually in property taxes. That can easily amount to several thousand
dollars a year!
More Fees and Excise Taxes
Some states charge higher
vehicle registration fees, higher gas taxes, or other "hidden" taxes
that add up over time.
Should You Move to a No-Income-Tax State?
The million-dollar question!
Moving to avoid state income tax can make sense, but it's not right for
everyone. Here's how to think about it:
It Makes the Most Sense If You:
•
Have a high income (the more you earn, the more you
save)
•
Are retired with significant income from pensions,
investments, or retirement accounts
•
Don't own property (avoiding those high property taxes)
•
Spend less (lower sales tax impact)
It Might NOT Make Sense If You:
•
Have a moderate income (the savings might not outweigh
moving costs and lifestyle changes)
•
Plan to buy an expensive home (higher property taxes
could offset income tax savings)
•
Have strong family/career ties to your current location
•
Value services that are well-funded in your current
state (education, infrastructure, etc.)
Let's Do the Math: A Real Example
Say you earn $100,000 and
you're deciding between staying in California or moving to Texas.
California:
•
State income tax: approximately $4,500
•
Property tax on $400,000 home: approximately $4,000
(1%)
•
Sales tax: 7.25% state rate
•
Total: ~$8,500 + sales tax
Texas:
•
State income tax: $0
•
Property tax on $400,000 home: approximately $10,000
(2.5%)
•
Sales tax: 6.25% state rate (can be higher with local
taxes)
•
Total: ~$10,000 + sales tax
In this scenario, you'd
actually pay MORE in Texas! The higher property tax wipes out your income tax
savings. But if you're renting instead of owning, Texas becomes much more
attractive.
What About Remote Workers?
This is a hot topic! If you
live in Oregon but work remotely for a New York company, which state gets to
tax you? Generally, the answer is Oregon—the state where you physically live
and work.
However, a few states (like New
York) have "convenience of the employer" rules that might still
require you to pay their state tax if you're working remotely by choice rather
than necessity. It's complicated, and if this applies to you, definitely
consult a tax professional!
Frequently Asked Questions
Do I have to file a state tax return?
It depends on where you live.
If you live in one of the nine states without income tax, you typically don't
need to file a state return (unless you have income from another state).
Otherwise, yes, most people need to file both federal and state returns.
What if I moved mid-year?
You'll likely need to file a
part-year resident return for both states—one for the time you lived in each
state. It's a bit of a hassle, but tax software can usually handle it.
Can states tax my retirement income?
It varies! Some states don't
tax Social Security or pension income even though they have income tax. Others
exempt military retirement pay. Each state has its own rules about retirement
income.
Are there other states without certain taxes?
Yes! For example, several
states don't have sales tax (Oregon, Montana, Delaware, New Hampshire). Some
don't have estate or inheritance taxes. The tax landscape varies greatly by
state.
The Bottom Line on State Taxes
State income tax is just one
piece of the puzzle. Before you make a major life decision based on tax rates,
look at the complete picture: income tax, property tax, sales tax, cost of
living, job opportunities, quality of life, and proximity to family and
friends.
Yes, saving on state income tax
is great. But is it worth living somewhere you don't want to be? Probably not.
On the other hand, if you were already considering Florida for the sunshine,
the zero income tax is a nice bonus!
Remember, you can't avoid
federal income tax by moving states, so that'll follow you wherever you go. But
choosing your state wisely can save you thousands in state and local taxes.
Do you live in a state
without income tax? Or are you considering a move for tax reasons? Share
your thoughts in the comments below! I'd love to hear about your experiences
with state taxes and whether you think the tax savings are worth it.
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