Living in a state that doesn't tax income can be a major advantage – especially to those in high income households. While many states force high earners to pay high taxes, states without personal income tax do not tax their earnings at all. This allows high earners to save much more of their money.
Con: Lower Infrastructure and Education Spending
In some cases, having no state income tax does translate to lower revenue for individual states. In turn, this may result in lower state spending on basic services.
The benefit of moving to a state with no income tax is pretty straightforward: you don't have to pay state income taxes on money you earn. Currently, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—don't levy income taxes on individuals.
Drawbacks. State income tax is an additional responsibility for taxpayers, on top of federal income tax. This means that taxpayers must file two separate returns and pay tax to each government. A second paperwork process means more room for error, and more time needed for completion.
Texas. The Texas Constitution forbids personal income taxes. Instead of collecting income taxes, Texas relies on high sales and use taxes. When paired with local taxes, total sales taxes in some jurisdictions are as high as 8.25%.
1. Highest State Tax Burden: New York.
Alaska. Alaska has the lowest tax burden throughout the entire U.S. It's one of nine states currently with no state income tax. The property tax is on the higher side at 3.68%, but the sales tax is near the bottom at 1.42%.
1. Delaware. Congratulations, Delaware – you're the most tax-friendly state for retirees! With no sales tax, low property taxes, and no death taxes, it's easy to see why Delaware is a tax haven for retirees.
Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.
With no state income tax — the state constitution forbids it — Florida's state government generates the bulk of general revenue (75% to 80% depending on the year) from sales tax collections. It gets the rest from a variety of sources, including documentary stamp taxes, insurance taxes and corporate income taxes.
Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — have no income taxes.
If both states collect income taxes and don't have a reciprocity agreement, you'll have to pay taxes on your earnings in both states: First, file a nonresident return for the state where you work. You'll need information from this return to properly file your return in your home state.
According to a study by Amerisleep, the happiest state is North Dakota (#1) followed by Vermont, Nebraska, South Dakota and California. The least happy states were Kentucky (#50) followed by West Virginia, Tennessee, Nevada and Ohio (see complete list below).
Florida relies more heavily on local revenue to fund government than any other state. Florida local governments account for 54.6 percent of Florida's total state and local revenue, the highest percentage in the nation and 21.9 percent above the U.S. average (see p. 15).
The strength of Florida's low tax burden comes from its lack of an income tax, making them one of seven such states in the U.S. The state constitution prohibits such a tax, though Floridians still have to pay federal income taxes.
Florida's a Lot Less Taxing
Florida, one of our 10 most tax-friendly states for retirees, has no state income tax. That means no state taxes on Social Security benefits, pensions, IRAs, 401(k)s and other retirement income. It also has no inheritance tax or estate tax.