9 States With No Income Tax and the Lowest Tax Burdens

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9 States With No Income Tax and the Lowest Tax Burdens
Comparison of States With No Income Tax
No-Tax StateTotal Tax Burden (% of income)Total Tax Burden Rank (1=lowest)Affordability (1=best)Best State to Live in (1=best)
Alaska5.10%14745
Tennessee5.74%21729
Wyoming6.14%33335
New Hampshire6.84%5384
Florida6.97%63110
South Dakota7.37%81415
Texas8.19%192231
Nevada8.23%224137
Washington8.34%26441

1. Alaska

Total Tax Burden: 5.10%

Alaska does not have a state income or sales tax. Alaska’s overall state and local tax burden, including income, property, sales, and excise taxes, is 5.10% of personal income, the lowest of any of the 50 states.

The Alaska Permanent Fund Corp. pays an annual payment to all Alaska residents based on income and investment gains from mineral lease rents and royalties. The 2021 dividend payout per citizen was $1,114.

However, the cost of living in Alaska is expensive, owing mostly to the state’s isolated location. Alaska also has the second-highest beer tax in the nation, at $1.07 per gallon, after only Tennessee. According to U.S. News & World Report, the state ranks 47th out of 50 in terms of affordability and 45th out of 50 in terms of “Best States to Live In.”

Alaska has some of the highest and fastest-rising healthcare prices in the country. However, with a per capita expenditure of $11,064 in 2014 (the most recent year for which the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary provided information), it also spent the most on healthcare, excluding the District of Columbia.

It also spent the most on education in the Western United States in 2019, at $18,394 per kid. The American Society of Civil Engineers gave Alaska’s infrastructure a C- rating in 2017. (ASCE).

2. Florida

Total Tax Burden: 6.97%

This attractive snowbird state has mild weather and a sizable elderly population. Florida has higher sales and excise taxes than the national average, yet the overall tax burden is just 6.97%, ranking sixth in the country.

Because of its higher-than-average housing expenses, Florida ranks 31st in terms of affordability. Nonetheless, Florida ranked tenth on U.S. News & World Report’s list of “Best States to Live In.”

Florida was one of the states with the lowest per-pupil expenditure in 2019, at $9,645 in 2019. Florida’s infrastructure received a C grade from the ASCE in 2021. Six years previously, the Education Law Center gave Florida the same rating for the fairness of its state school revenue allocation. In 2014, its per capita healthcare expenditure was $8,076, $31 more than the national average.

3. Nevada

Total Tax Burden: 8.23%

Nevada is primarily reliant on income generated by hefty sales taxes on everything from groceries to clothing, sin taxes on alcohol and gaming, and casino and hotel taxes. Nevadans have a total tax burden of 8.23% of their personal income, the second-highest on the list. When compared to all states, it still rates a very respectable 22 out of 50.

Nonetheless, Nevada ranks at the bottom (41) in terms of affordability due to high living and housing prices. The state is ranked 37th on the list of “Best States to Live in” by U.S. News & World Report.

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Nevada spent $9,344 per kid on education in 2019, ranking fourth in the western United States. The ASCE had given Nevada a C grade for its infrastructure a year earlier, in 2018.

Nevada was the weakest state overall in terms of the fairness of its state school budget allocation in 2015, obtaining a F rating from the Education Law Center. Nevada spent $6,714 per capita on healthcare in 2014, the lowest on this list and the fourth-lowest overall.

4. South Dakota

Total Tax Burden: 7.37%

South Dakota, like many other states without an income tax, generates money from various kinds of taxing, such as tobacco and alcohol levies. The Lakota Sioux homeland and the Black Hills have one of the highest sales tax rates in the nation, as well as above-average property tax rates. According to The Atlantic, South Dakota’s status as home to numerous large credit card corporations, together with higher property and sales tax rates, helps to maintain the state’s inhabitants tax-free.

According to WalletHub, South Dakotans pay just 7.37% of their personal income in taxes, putting the state seventh in terms of overall tax load. According to U.S. News & World Report’s “Best States” rankings, the state ranks 14th in affordability and 15th in population.

South Dakota spent $8,933 per person on healthcare in 2014, ranking 14th in the country. Although it spent more money on education, it spent less per kid than any other surrounding Midwestern state in 2019, at $10,139. Furthermore, it scored a F for school budget allocation.

South Dakota has not earned an official letter grade from the ASCE, despite the fact that most of its infrastructure is noticeably degraded, with 17% of bridges classified as structurally poor and 90 dams classified as having high hazard potential.

5. Texas

Total Tax Burden: 8.19%

The Lone Star State is so opposed to personal income taxes that it chose to prohibit them in the state constitution. Nonetheless, since infrastructure and services must be paid for in some way, Texas depends on revenue from sales and excise taxes to cover the costs.

In certain regions, sales tax may reach 8.25%. Property taxes are also higher than in the majority of states, resulting in a total tax burden of 8.19% of personal income. Nonetheless, Texans’ total tax burden remains among the lowest in the country, with the state placing 19th. Texas ranks 22nd in the US for affordability, yet it ranks 31st on U.S. News & World Report’s list of “Best States to Live In.”

Texas spent $9,827 per pupil on education in 2019, ranking it below average among the 17 Southern states, and it received a D grade for its school funding distribution in 2015. In 2021 the ASCE awarded it a grade of C for its infrastructure. Texas spent $6,998 per capita on healthcare in 2014, the seventh-lowest amount in the U.S.

One advantage of living in a no-tax state is that the $10,000 cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act will likely not have as great an impact as it does on residents of high-tax states, such as California and New York.

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6. Washington

Total Tax Burden: 8.34%

Washington hosts a young population, with only 15.9% of its residents over age 65, and many major employers, thanks to the lack of state-mandated corporate income tax (note that high-income earners are subject to state capital gains tax) (note that high-income earners are subject to state capital gains tax).Residents do pay high sales and excise taxes, and gasoline is more expensive in Washington than in most other states. The state comes in at 26 out of 50, with a total tax burden of 8.34%.

Unusually higher-than-average living and housing costs hurt Washingtonians, putting the state at 44th in terms of affordability. For some residents that might not matter, however, because their state was ranked by U.S. News & World Report as the overall best state to live in once again for 2021.

Washington spent $7,913 per capita on healthcare in 2014, $132 below the national average. Conversely, at $14,223 per pupil, it spent more on education than most in 2019, though it received a C grade for its school funding distribution four years earlier. In 2019, Washington earned the same grade for its infrastructure from the ASCE.

7. Wyoming

Total Tax Burden: 6.14%

Wyoming is the second least densely inhabited state, with an estimated six individuals per square mile, behind only Alaska, which has around one human being for every square mile. Citizens pay no personal or corporate state income taxes, no retirement income taxes, and only pay a minimal sales tax. The overall tax burden, which includes property, income, sales, and excise taxes, is 6.14%, placing the state third lowest.

Wyoming, like Alaska, taxes natural resources, particularly oil, to compensate for the absence of a personal income tax, according to Cowboy State Daily reporting. According to U.S. News & World Report, the state ranks 33rd in terms of affordability and 35th in terms of “Best States to Live In.”

Wyoming was the second-highest spender on education in the western United States in 2019, spending $16,304 per kid. It also received an A for school funding allocation in 2015, the highest on this list.

In contrast, Wyoming’s healthcare expenditure in 2014 was relatively modest, at $8,320 per capita. Although Wyoming has not yet gotten an official letter grade for its infrastructure, the ASCE discovered that 6.9% of its bridges are structurally poor and 99 of its dams pose a significant risk.

8. Tennessee

Total Tax Burden: 5.74%

Prior to 2016, Tennessee taxed investment income, including most interest and dividends, but not wages. In 2016, legislation was approved that contained a proposal to reduce taxes on unearned income by 1% each year until the tax was removed at the beginning of 2021. To make up for the gap, Tennessee imposes hefty sales taxes, including the highest beer tax in the union, $1.29 per gallon.

Tennessee intends to attract retirees who rely largely on investment income once the new law is fully implemented. The entire tax burden in the state is 5.74%, which is the second-lowest in the country. Tennessee ranks 17th overall in the affordability category, and 29th on the U.S. News & World Report “Best States to Live In” list.

Tennessee placed slightly above Texas in terms of education expenditure in the southern United States in 2019, at $9,868 per kid. It also performed a better job than Texas at allocating school financing properly, giving the Equality State a C in 2015.

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Tennessee ranked 39th in terms of healthcare expenditure in 2014, at $7,372 per capita. Although the state has not yet gotten an official letter grade for its infrastructure, the ASCE has noted that 4.4% of its bridges are structurally poor and 276 of its dams have a high hazard potential.

9. New Hampshire

Total Tax Burden: 6.84%

Earned income is not taxed in New Hampshire, although dividends and interest are. The New Hampshire Senate approved legislation that would phase away the investment income tax by 1% each year for five years, with full implementation by 2027. The state does not have a state sales tax, but it does have excise taxes, notably alcohol taxes, and its average property tax rate of 1.86% of property values is the third highest in the US.

Nonetheless, according to WalletHub, New Hampshire’s overall tax burden is just 6.84%, placing the state seventh in the country. The state is ranked fourth in the US for “Best States to Live In” by U.S. News & World Report, and 38th for affordability.

Despite spending more on education than any other state on this list ($17,462 per kid in 2019), New Hampshire’s expenditure was among the lowest in the northeastern United States. Furthermore, the Education Law Center gave it a D for school revenue allocation in 2015.

In 2017, New Hampshire achieved a somewhat higher grade of C- for its infrastructure. Its healthcare expenditure is the eighth highest in the country, at $9,589 per capita in 2014.

Which Are the Tax-Free States?

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states without a state income tax as of 2022. It should be noted that Washington does impose a state capital gains tax on select wealthy incomes.

Why Do States Charge a State Tax?

Following the passage of the United States Constitution, the federal government was given the ability to tax its inhabitants. Each state also kept the right to levy any taxes it desired, with the exception of those prohibited by the United States Constitution and its own state constitution. These states’ governments are supported by taxation, fees, and licensing.

Which States Don’t Tax Retirement Distributions?

Retirement payouts are not taxed in twelve states. Distributions from 401(k) plans, individual retirement accounts (IRAs), and pensions are not taxed in Illinois, Mississippi, or Pennsylvania. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the remaining nine states that do not impose a state tax at all. Pensions are not taxed in Alabama or Hawaii, but payouts from 401(k) plans and IRAs are.

Which States Tax Social Security Benefits?

Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia are the only states that tax Social Security payments.

The Bottom Line

Despite the difficulties that no-tax jurisdictions confront, some seem to strike a balance between low taxes, affordability, and offering a nice place to live. Others are struggling. One thing is certain: low taxes alone do not convey a thorough picture of a state’s cost of living.

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