Ever wonder what the best states for taxes are? Not every state has the same tax rate, so there’s an advantage to living in specific states from a tax perspective. In fact, some are income tax-free states. Learn more about which states don’t have income tax in this post.
For taxpayers in a majority of the states in the U.S., tax time means filing a return for federal and state income taxes. However, that’s not the case for everyone across the country. If you’re a taxpayer in one of the seven states without an individual income tax, you are not required to prepare and file a state income tax return.
Tax-free states
The following are tax-free states (don’t have income tax):
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
Additionally, the following are tax-free states in the USA that don’t have income taxes for earned income, but they do tax dividend and interest income. This will phase out in future years, however, making the states both income tax free by 2025.
- New Hampshire
- Tennessee
If you live in a state without individual income taxes, you won’t need to pay taxes on your wages or income from Social Security, pensions, or retirement plans, such as 401(k)s or an individual retirement account (IRA). However, taxpayers in these states are still subject to other types of taxes, including local taxes, property taxes, or sales taxes.
So, what are the best states for taxes?
While Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t impose state income taxes, are they really the best states for taxes?
Because there are a number of additional state taxes imposed outside of income tax, the best states for taxes are really on a case by case basis. You must consider all taxes imposed, plus the cost of living in each state.