Nine States Without Income Tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Nonetheless, some capital gains are taxed in Washington, while dividends and interest are taxable in New Hampshire.
States Without Income Tax
Nine states do not have state income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But Washington taxes some capital gains, while New Hampshire taxes interest and dividends.
While most earned income is exempt from taxation in New Hampshire, dividends and interest are subject to a 3% levy. The whole tax will be phased out by 2025. Additionally, assets sold for a profit of $250,000 or more are subject to a 7% long-term capital gains tax rate in Washington.
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9 States With No Income Tax
Nine states in the United States do not now impose an individual income tax. The states in question are Wyoming, Alaska, Florida, New Hampshire, Nevada, South Dakota, Texas, and Washington.
Alaska
- There used to be an income tax in Alaska, but it was eliminated in 1980. Although several municipalities do impose a sales tax, the state does not. Furthermore, the Alaska Permanent Fund Corporation provides additional funding to every person annually.
- The Alaska state government depends on various forms of taxes, such as excise and severance taxes, to pay for its operations rather than sales and personal income taxes. company oil and gas drilling operations provide the majority of company income.
Florida
- Although Florida’s income tax was eliminated in 1855, its citizens still had to pay sales taxes and corporate income taxes. Local governments in Florida also impose greater property taxes than in the majority of other states.
Nevada
- Operating without a business or personal income tax is not a problem for the Silver State. The state can earn close to one billion dollars in gaming taxes and fees because of the millions of visitors who come here every year.
- Nevada additionally receives funding from taxes on the gaming and hotel sectors, substantial sales taxes (over 8% in certain locations), and sin taxes.
New Hampshire
- Although there is now no personal income tax in New Hampshire, there is a 4% tax on profits and interest. Before it is completely abolished in 2027, this rate will fall by 2% in 2025, 1% in 2026, and 3% in 2024.
South Dakota
- The income tax was eliminated in South Dakota in 1943, and efforts to reintroduce it have been unsuccessful. Cigarette and alcohol sales provide revenue for Mount Rushmore State. It even charges license fees for coin-operated launderettes.
Tennessee
- There is no income tax in Tennessee. This includes not just wages but also dividends, interest, and capital gains from investments. Tennessee did, however, have an income tax as late as 2020; it was referred to as the Hall Income Tax.
- The Volunteer State will continue to generate cash in the meantime by imposing high sales tax rates and sin levies. For instance, a $1.29 state tax is required of beer dealers for each gallon they sell.
Texas
- It is against the law in Texas to levy personal income taxes. Sales and use taxes, not income taxes, are crucial to Texas’s economy. When added to local taxes, the total sales tax in certain places could exceed 8.25%. The property tax rates in Texas are quite high. Just a handful of states have higher property tax rates.
Washington
- There is no corporate or personal income tax in this state. However, a 7% tax on capital gains income will be due from you. Certain exclusions and deductions do, however, apply. Furthermore, company owners in Washington are subject to a gross receipts-based public utility tax as well as a business and occupation (B&O) tax.
Wyoming
- If low tax rates are important to you, Wyoming is a good state to consider moving to. Neither personal nor business income nor retirement funds are subject to state income taxes in the Cowboy State. A little under 5.5% of sales are subject to taxation, with an average effective property tax rate of around 0.57%.
States Without Income Tax Advantages and Disadvantages
Living in a place where there is no income tax has benefits and cons, just like most choices in life. Think about the following before acting:
Pros:
- Greater take-home pay: The first and most evident advantage of residing in an income-tax-free state is that your paycheck is larger. Your disposable income may grow since the state does not deduct a percentage of your earnings.
- Promote industry and investment: States without income taxes are seen as economically appealing as they lessen the total amount of taxes they must pay, which improves their bottom line. This incentivizes entrepreneurs and companies to launch new projects and activities that have the potential to increase employment and promote economic expansion.
- Easier Tax Filing: Filing taxes is made easier when there is no state income tax. You may save time and money on tax preparation by not having to complete a state tax return.
Cons:
- Other high taxes: Sadly, governments must find other sources of funding if income tax isn’t sufficient to cover the cost of public services. This often translates into increased property taxes, sales taxes, or additional levies on goods like petrol and alcohol.
- Possibility of fewer public services being provided: Less income tax revenue might mean underfunding of various public services, which would lead to worse infrastructure, underfunded public schools, or less effective public safety services.
- Living expenses: Living in a state with no income tax does not always translate into a lower cost of living. The advantages of having no state income tax may be outweighed by the high cost of living in states like Alaska and Washington.