In 2024, there are nine states with no income tax, meaning residents may enjoy a major tax break when they go to file. (One of these states, though, does tax interest and dividend income.) It’s worth noting, however, these nine states earn revenue in other ways, including higher sales and property taxes.
Read on for details on this important financial issue that can impact one’s quality of life significantly.
Which States Don’t Have Income Tax?
Across the U.S., only nine states don’t charge income tax:
• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
It’s worth noting that while New Hampshire doesn’t charge taxes on earned wages, it does tax interest and dividend income.
Recommended: How to File Your Taxes for the First Time
Alaska
Not only does Alaska have no state income taxes, but the Last Frontier is also devoid of state-level sales taxes. (Localities can leverage their own sales taxes, however.)
The state’s economy largely depends on oil and gas, as well as tourism and fishing. The median home price is approximately $354,333 (compared with the national figure of $362,870), but Alaska isn’t exactly a cheap place to live. The state has a cost of living that’s 25% higher than the national average.
Plus, Alaska’s remoteness and 60-plus days every year with almost no daylight make it a tough — though beautiful — place to live.
Florida
Florida is known for its beaches, theme parks, retirement communities, and gators. With three national parks (and even more national seashores, preserves, etc.), Walt Disney World and Universal Studios, and beach paradises like Miami and Destin, Florida brings in a lot of tourism money.
While Florida has no state income tax, its sales taxes and property taxes are considered average. If you can withstand hurricane season, you might appreciate Florida’s cost of living. With a cost of living index of 103.1, it’s just above the national average of 100.
For many people, the state’s wallet-friendly profile can allow them to make ends meet and maybe stash some cash in an online savings account.
Nevada
Nevada may be most famous for the Las Vegas Strip, which is probably why the state does so well with its sin taxes on gambling and alcohol. While those excise taxes may be high, the state income taxes sure aren’t.
Like Florida, Nevada is just above the national average cost of living, with a score of 102.7 versus the U.S. average of 100. It seems that many people have felt the pull of living here: It’s one of our country’s fastest-growing states.
New Hampshire
If you’re thinking about moving to New Hampshire because it doesn’t have income tax, consider this: Overall, New Hampshire doesn’t fare that well in terms of cost of living, with a current figure of 113.6 vs. the national average of 100. But this desirable state offers stunning foliage in the fall, great skiing in the winter, and a beautiful landscape to explore in warmer weather.
Note: New Hampshire does charge state income tax on interest and dividends. The state will phase this out in 2025.
South Dakota
Those who live in South Dakota primarily work in agriculture, though the state’s economy also depends heavily on a mix of forestry, mining, and tourism. (The state is home to Badlands National Park and Mount Rushmore.)
Not only does South Dakota have no state income tax, but the state’s overall cost of living is below the national average at 93.4.
Tennessee
From the honky tonks of Nashville to the stunning mountain vistas of the Smokies, Tennessee has a lot of appeal. Plus, it doesn’t hurt that the state has no income tax.
Tennessee’s sales tax is among America’s most expensive, but as for overall cost of living? Tennessee ranks 10th most affordable in the country at 90.3.
Texas
Everything’s bigger in Texas, except your state income tax bill. That’s because Texas doesn’t have state income tax. Overall, cost of living in Texas is promising — it comes in at 92.4 vs. the national average of 100 in terms of affordability. And property taxes recently clocked in at 46th out of the states, meaning you may be able to enjoy relatively low housing costs compared with elsewhere.
Texas is a huge state with a lot to offer. Cities like Houston, Dallas, and Austin have plenty of restaurants, sports teams, and music festivals; the Gulf Coast region is great for fishing and relaxing on the beach; and the state’s natural landscape is vast and varied.
Washington
Not to be confused with our nation’s capital of Washington, D.C., this state has no state income tax. While property taxes are average (ranking 23rd in America), sales tax rates range from average to on the high side.
With three national parks, a famous city packed with coffee and nightlife, and plenty of whale watching, Washington makes a great state to visit and live in. Just be aware of its cost of living: Washington’s is high at 115.1 compared with the average of 100 for the country.
Note: High earners may pay taxes on capital gains in Washington.
Wyoming
Wyoming has some of the most beautiful landscapes in the country, including the Grand Tetons and part of Yellowstone. Perhaps that’s why its tourism industry is on the rise. The state also depends heavily on agriculture (cows and sheep) and mining.
In addition to not having state income taxes, Wyoming also has some of the lowest property tax rates in the country. Even better, the cost of living in Wyoming is under the national average (95.1 vs. the average of 100).
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Advantages of Living in a State Without Income Tax
Before packing up the boxes and budgeting for moving expenses, it’s important to weigh the pros and cons of states with no income tax. Here are some of the advantages:
Money-Saving Benefits for Families and Retirees
Living in a state with no income taxes can inject extra money into a family’s budget. However, it’s important to remember that states may make up that lost revenue through other types of taxes, like higher sales and property taxes.
Retirees may especially appreciate living in one of the nine states without income taxes, as they also don’t tax retirement distributions. (Illinois, Mississippi, and Pennsylvania also give this tax break to retirees; Alabama doesn’t tax pensions.)
Recommended: Financial Tips for People in Their 40s
Economic Benefits
Businesses are often attracted to tax-friendly states. While they’ll be paying more attention to states with corporate tax breaks, there’s a lot of overlap between the two. (Six of the 10 most tax-friendly states for businesses don’t have state income taxes.)
States that attract businesses will theoretically have more job opportunities, making them a smart place to move if you’re looking for higher pay and more options.
Easier Tax Filing
Living in a state without income taxes makes tax season a little easier. After all, it’s one less place to file.
It also means you may save money on tax filing. Tax software and accountants may charge more if you want to include state filing each year.
Considerations Before Moving to a State With No Income Tax
Clearly, living in a state without income tax has some benefits. But it’s important to consider the potential downsides to living in a no-income-tax state.
Higher Property and Sale Taxes
While it varies by state, some of the states without income tax make up that revenue through higher sales and/or property taxes.
Researching sales and property tax rates, as well as a state’s cost of living, can give you a fuller picture beyond the income tax rate.
Funding for Government Projects
If states are earning less revenue from income taxes, that can sometimes mean there’s not as much budget to tackle government projects. Proponents of state tax argue that they help fund important priorities, like education and infrastructure.
How Does No Income Tax Impact Cost of Living?
Income taxes are just one of many factors used to calculate a state’s cost of living. Without having to budget for state income tax — which goes as high as 13.30% in California — residents in these states already have an advantage.
But cost of living depends on more than just state income taxes. Economists also consider factors like housing, food, transportation, gas, and healthcare when calculating a state’s cost of living.
For example, Washington may not have income tax, but it has some of the highest home prices in the United States. Currently, the average home value is $600,477 versus the national average of $362,870.
And remember: Though some states may not have income tax, they may charge higher sales and property taxes.
How Does No Income Tax Impact Your Tax Return?
If you live in a state that doesn’t require you to file a tax return, you’ll still have to file a federal return. However, you can omit the state-level step in your process.
It also means your paycheck will have fewer taxes withheld throughout the year — leading to a higher take-home paycheck.
The Takeaway
Is living in a state without income tax all it’s cracked up to be? For some, it can mean serious savings. But it’s important to consider other taxes, like sales and property taxes, as well as a state’s cost of living, when making any big decisions about where to live.
Expecting a big tax refund this year, whether from federal or state returns? Consider putting it in a high-yield bank account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is it better to live in a state with no income tax?
People may find more flexibility in their budget when they don’t have to worry about paying state tax. They’ll also have an easier (and potentially more affordable) experience when it’s time to file their taxes.
That said, residents may find they’re paying more in other taxes — sales and property taxes, primarily — and may encounter higher costs outside of taxes, like housing and food.
Ultimately, people should consider cost of living and tax rates alongside other important factors when choosing a place to live, such as climate, access to healthcare, proximity to friends and family, the job market, and more.
What is the most tax-friendly state?
Determining the most tax-friendly state for your situation depends on a few factors, like your main source of income (paycheck, capital gains, etc.), your propensity for spending (how often you’ll encounter sales tax), and property ownership (do you own or rent your home?).
That said, Alaska is objectively the most tax-friendly state, as it places the lowest tax burden on its citizens overall. However, that may be balanced by a higher cost of living.
What is the best state to live in to avoid taxes?
Alaska is currently the state with the lowest tax burden when you factor in income tax, sales taxes, and property taxes. The Last Frontier has no state income tax or state-level sales taxes (though individual localities can impose their own taxes), though it ranks somewhere in the middle for property taxes.
What are the three least taxed states in the US?
The three least taxed states in the U.S. are Alaska, New Hampshire, and Wyoming. These states are considered to be highly tax-friendly not only because of their lack of state income tax but also because of their sales and/or property tax rates.
Photo credit: iStock/Martina Birnbaum
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOBK0123039