U.S. taxpayers pay over $1 trillion in state income taxes every year.
But what if you could pay $0 in state taxes?
It turns out that you can. You can pay absolutely nothing in state taxes, just by packing up your bags and moving to a tax-free state.
And according to UHaul statistics, a lot of people are.
If you read until the end of this post, you’ll find out the top tax-free states and the lowest overall tax rates in the country.
Let’s go ahead and dive in!
What are State Taxes?
State income taxes are simply money you pay to your state based on the income you make.
This money is used to fund things like public education, health care, state parks, economic development, state police, and so much more.
As the old saying goes, “There is no such thing as a free lunch.” And unless you’re Jeff Bezos, you’re probably paying state taxes when you get paid, or at tax time if you’re an entrepreneur.
Now, the interesting thing here is that the percentage of money that you pay into state income taxes varies based on the state you live in.
Some states have higher taxes than others, while other states have no state income taxes at all.
But wait a minute… how are states funding things without state taxes?
In a number of different ways, they can increase their revenue through sales taxes, property taxes, and other taxes.
So if you’re considering moving to tax-free states, you should be aware of other taxes that might apply in that state.
We’ll be giving you some general info on other taxes in these states for you to keep in mind.
However still, in general, people who do not pay state income taxes end up paying much less overall in taxes.
So let’s put the magnifying glass on this and take a look at the full picture in each of the tax-free states.
But for some perspective, let’s take a look at the states with the most expensive state income taxes.
Top 10 States With The Highest Income
- California – 13.3% (maybe that’s why so many people are leaving)
- Hawaii – 11% (we’d love to visit, but we definitely won’t be retiring there)
- New Jersey – 10.75% (hope it’s worth it)
- Oregon – 9.9%
- Minnesota – 9.85%
- District of Columbia – 8.95%
- New York – 8.82%
- Vermont – 8.75%
- Iowa – 8.53%
- Wisconsin – 7.65%
These are some very expensive taxes.
This is especially true when you consider the fact that these are taxes that people are paying on their income, in addition to their federal tax rates.
Depending on your income, you can pay up to 37% more in federal income taxes alone.
So these state taxes definitely chip away at the money you are earning.
Not to mention all of the other taxes you pay – like sales tax, local taxes, property taxes, Medicare taxes, social security taxes, and so on.
Like if you live in California, half of your income might go to taxes.
And according to UHaul statistics, people are leaving states like New York and California at extremely high rates.
Now, this might be for a number of reasons, but we’re sure taxes are a major consideration here.
So let’s look at the top tax-free states and see if we can draw any correlations here.
9 Top Tax-free States You Can Consider Moving Into
Number one on the list is Tennessee. Fun fact: “Tena-see” is an Indian word for “the meeting place”. And that’s exactly what’s going on here.
According to UHaul, the state of Tennessee had the highest migration growth in the country in 2020.
And take a look at this, Tennessee has no income tax on salaries and wages.
On the other hand, Tennessee does have the highest overall sales tax in the country, with sales taxes ranging from 7 – 10%.
However, this is balanced out by its low property tax rate.
According to Wallet Hub, Tennessee has the 2nd lowest overall tax burden out of every state in the United States other than Alaska.
And who wants to live in Alaska? There are 7 million people who live in Tennessee, while less than 1 million people live in Alaska.
Texas is second on UHaul’s list for migration growth.
And to no surprise, Texas, like Tennessee, does not collect any sales tax whatsoever.
Now, where Texas is different from Tennessee is that it has a significantly higher property tax rate. It’s about 3x the amount of the property tax in Tennessee.
However, on the flip side, Texas has a lower sales tax rate, so maybe this balances out a little bit.
With all things considered, Texas’ total tax burden is still in the bottom half of all states in the U.S.
As one of the largest states in the country with a whole lot to offer, Texas is a very attractive state to live in.
At number three, we have the Sunshine State in the south, none other than Florida.
So far UHaul’s migration trends have been consistent with tax-free states. And it isn’t stopping in Florida.
The state of Florida is ranked number three in migration growth, and also has one of the lowest tax burdens.
At this point, we think it’s safe to say that state taxes are a major factor in where someone chooses to live.
Florida has no income tax whatsoever with a reasonable property tax and sales tax.
Its overall tax burden would fall somewhere around the lowest 10% in the country.
However, there are some other taxes that Florida citizens pay.
If you’ve ever driven in Florida, then you’ve probably driven into a “toll tax.”
Florida charges a toll tax to drive on certain roads in Florida, which may add up over the year into some significant expenses for some people.
The state collects over $1 billion per year in toll taxes, which is used to invest in their roads.
But ultimately, these types of taxes are negligible when you consider the fact that Florida residents pay no income taxes, while people in states like California are paying an extra 13%.
Next is the home to Sin City – the great state of Nevada.
Nevada ranked 8th on UHaul’s list of top migration states.
It’s an easy move for people in California who do not want to pay any State Income Taxes.
Nevada citizens pay 0% state income taxes, a decent share of sales taxes, and low property taxes.
People are pouring out of the Bay Area into Nevada, and saving on state taxes is likely on their list of reasons why.
5. New Hampshire
The next one on our list of tax-free states is New Hampshire, also known as the Granite State.
New Hampshire is on the northeast coast of the United States so if you are in a high-tax state like Vermont, New York, or New Jersey, it might be worth considering.
Not only does New Hampshire have zero income taxes, but they also have no sales taxes.
It is one of only 5 states in the whole country that have absolutely no sales tax. Other states include Alaska, Delaware, Montana, and Oregon.
Now, they do have a slightly higher property tax rate to make up for this gap of revenue, but this still makes New Hampshire more attractive than many other states from a tax perspective.
Let’s jump to the other side of the country and take a look at number six on our list, Washington, the Evergreen State.
Washington is another popular choice for many people leaving the Bay Area and other high-tax states on the West coasts like Oregon.
Now, this is an interesting one because citizens in Washington pay no income taxes to the state, but pay some of the highest sales taxes in the country.
The property taxes are not necessarily the lowest either, making Washington a tax-neutral state in our opinion.
Washington has the 24th highest tax burden in the country, putting it right in the middle of the spectrum for tax-friendliness.
7. South Dakota
Moving to the MidWest, we have South Dakota coming in number seven, also known as the Mount Rushmore State.
If you’re in high-tax states like Minnesota or Iowa, then it might be worth checking out South Dakota.
South Dakota has no state income taxes and its sales taxes are in the bottom third of the country, which is good.
Its property tax is a little higher than the national average of 1.07%, but nonetheless, this is a tax-friendly state.
Next on our list is the Equality State, Wyoming.
Wyoming is another tax-friendly state in the midwest, right by South Dakota.
So if you’re Montana, Idaho, or Utah, and you want to save $1 or $2 in taxes, definitely check out Wyoming.
Wyoming is awesome. It has zero income taxes, the 10th lowest property tax in the nation, and the 7th lowest sales tax in the nation.
And last but not least on our list, the Last Frontier, Alaska.
Now, Alaska is technically the largest state in the United States. But while this is the case, less than 1 million people live there.
Clearly, they know this, because it has the lowest tax burden in the nation.
It has zero income taxes, no sales taxes for the most part, and a fair property tax rate.
So while Alaska may not be the most attractive state to live in, it certainly has the most attractive taxes in the nation.
And that’s our list of the tax-free states that you can consider moving into. What do you think about this?
Comment below and let us know where you live and your experience with state taxes.
And if you’re looking for more ways to save on your taxes, our tax consultants can definitely help you. Go ahead and schedule a meeting today!