Seven States Without an Income Tax

The Tax Bite in States Without an Income Tax

A map showing the highest marginal tax rate in each state for the year 2014 from the Tax Foundation.
© Tax Foundation

The Internal Revenue Service isn't the only tax entity that wants a piece of your paycheck. Most states—41 in all—impose a broad-based individual income tax. Only seven lack an income tax altogether: 

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Two states fall into a gray area. They impose a limited income tax on individuals, taxing only dividend and interest income, not earned income:

  • Tennessee
  • New Hampshire

Tennessee to Become the 8th Tax-Free State

Tennessee is gradually reducing its Hall Tax on interest and dividend income. The state's 6% Hall tax rate will reduce to 5% for tax year 2016. The tax rate will be reduced in one percent increments each year until the tax is completely eliminated in the year 2022.

For details, see, 

Retirement Income

Although 41 states impose an income tax, 36 states take it easy on retirees. Although the guy still punching a timeclock might have to pay income tax, many seniors do not, at least if they stop working. Some of these states exclude all retirement income while others exempt only a portion.

These states do not tax Social Security income: Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia, Wisconsin and the District of Columbia.

  • Kansas exempts Social Security income if your adjusted gross income from all sources does not exceed $75,000.

These states do not tax government pensions (although some of these states do not provide a tax exemption for state and local pensions from other states): Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania.

  • Pennsylvania also exempts private-sector pension income.

Alabama does not tax income from defined benefit retirement plans.

Hawaii does not tax income from contributory retirement plans.

Source: a comprehensive study comparing how each state taxes retirement income (State Personal Income Taxes on Pensions and Retirement Income, full report as pdf, National Conference of State Legislatures, April 2015). 

Will I Pay Less Taxes Overall in These States?

Before you plant a "For Sale" sign on your lawn and begin packing your bags to move to one of these states, keep in mind the still need revenue to function and they have to get that money from somewhere. States without an income tax often make up for the lack of these revenues in other ways. Higher property taxes, sales taxes, fuel taxes and other taxes could add up so you're paying more in overall taxation than you might in a state that does tax income.  

  • New Hampshire and Texas have some of the highest property taxes in the nation. 
  • Tennessee has one of the highest sales tax rates in the U.S.
  • Washington will get you at the gas pump. Its gasoline tax is exorbitant.

Many of these states also have higher-than-average costs of living. That being said, most—but not all—of these states did make the Tax Foundation's Top 10 list of states with the lowest overall tax burdens

NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice. 

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