Looking to save on taxes and increase your wealth? Well, you’re in luck! There are nine states in the U.S. where you won’t have to pay a dime in income tax. These include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Imagine landing a great job and meeting your soulmate in one of these tax-free states. As your income grows, you’ll save more by not having to pay state income taxes.
When you retire, you probably won’t need to move because these states usually don’t tax Social Security benefits, IRA or 401(k) withdrawals, and pension payouts. In fact, 41 states, including Missouri and Nebraska, have stopped taxing Social Security benefits as of 2024.
If you’re lucky enough to become wealthy, you might want to consider states that don’t tax estates or inheritances. Most states without income taxes also don’t tax estates and inheritances. So, if you’re early in your career and want to get rich while saving on taxes, it’s a good idea to study state taxation rates. As you get older, it becomes harder to move because of the network you’ve built, regardless of the state income tax rate.
Unfortunately, most high-paying jobs are in states with high income taxes, like California, New York, New Jersey, and Connecticut. These states are major hubs for industries like technology, finance, and management consulting. When I graduated from college, my only job offer was in New York City, where there’s an additional city tax of 3% to 3.87%. Despite trying to get a consulting job at firms like Deloitte, KPMG, or Andersen Consulting in Virginia, another high-tax state, I couldn’t get past the initial interview stages.
While not paying state income tax might seem attractive, especially if you have a high income, remember that there’s no such thing as a free lunch. States without income tax still need money to fund essential services like infrastructure, education, and emergency services. This money mainly comes from sales, property, and estate taxes.
If you’re planning to buy a home, which is a crucial step towards long-term wealth accumulation, you should consider property tax rates across states. States like Texas, Florida, and New Hampshire, which don’t collect state income taxes, often make up for it with higher property taxes. Also, home insurance premiums in Florida, Texas, South Dakota, and Tennessee have been rising.
Now, let’s rank the best nine no income tax states from worst to best. The ranking is based on opportunities to make money, weather, other tax rates, entertainment, food, and culture. The first three factors are more objective than the last.
In the least attractive group, we have Alaska, South Dakota, and New Hampshire. Alaska has stunning natural beauty, but its harsh winters, limited food variety, sparse entertainment options, and heavy reliance on oil revenues pose significant challenges. South Dakota is great for hunting and fishing, but its winters are long and harsh. New Hampshire offers fantastic outdoor activities, but finding a high-paying job there may be challenging.
The second-best group includes Tennessee, Wyoming, and Washington. Tennessee is known for its vibrant cultural hubs like Nashville and Memphis. Wyoming is a haven for nature enthusiasts, but earning a substantial income there can be challenging unless you can work remotely. Washington is known for its rainy and overcast weather, but it’s a hub for high-paying jobs.
Finally, the best three states with no state income taxes are Florida, Nevada, and Texas. Florida offers a high quality of life with a plethora of attractions and amenities. Nevada boasts a business-friendly regulatory climate, with minimal red tape and low corporate tax rates. Texas offers a thriving economy and ample employment opportunities across various industries.
However, it’s important to note that the experience of living in these states can be different for minority communities. For example, a friend of mine who is white and has three black adopted children moved from San Francisco to Tampa Bay but decided to move back after only ten months because his children faced discrimination and bullying.
In conclusion, while the idea of avoiding state income taxes may be tempting, prioritize finding the best job opportunity first. If that happens to be in one of the top no state income tax states, consider it a bonus. However, if not, you can always explore relocation options after gaining more experience.
