Income tax is a percentage of an individual’s earnings paid to the government to fund public services. On average, the US federal income tax rate ranges from 10% to 37%, while state income tax rates are between 0% and 13% or even more according to Wikipedia and Tax Foundation. People are often drawn to states with lower income tax rates because it allows them to keep a larger portion of their earnings and improve their financial stability. Wikipedia highlights these tax-haven states.
Alaska
As one of the most tax-friendly states in the US, Alaska offers zero state income tax and no state sales tax. This dual tax advantage allows residents to retain more of their earnings. Additionally, Alaska’s Permanent Fund Dividend program distributes a portion of the state’s oil revenue to residents, further boosting income.
Florida
Florida has long attracted residents with its no-state income tax policy, appealing to retirees and individuals with significant investments. The state also benefits from low property taxes and a competitive cost of living compared to other high-demand regions. In addition to tax advantages, it has a warm climate, beautiful beaches, and a strong economy.
Nevada
Nevada residents pay no income tax, benefit from low property taxes, and there is no state tax on Social Security or pensions. This tax exemption combo makes the state particularly appealing to retirees. Beyond tax incentives, Nevada is known for its entertainment hubs like Las Vegas and Reno and its proximity to scenic views such as Lake Tahoe.
South Dakota
Living in South Dakota is pretty affordable. It’s one of the most tax-friendly states, with no state income tax and no inheritance tax. Property taxes in South Dakota are also moderate, contributing to a low overall tax burden. The state’s economy is stable, with agriculture, manufacturing, and tourism being key industries.
Texas
Texas is a standout state for its no-state income tax policy—a magnet for individuals and businesses. In addition to income tax savings, Texas has no state tax on Social Security or retirement income. However, property taxes in Texas tend to be higher than the national average, but the absence of income tax helps offset this.
Washington
Although Washington has a high sales tax, residents don’t have to pay the state income tax. This is probably why many high-income earners and entrepreneurs prefer to move to the state. Washington’s economy is booming, driven by tech giants and a strong aerospace industry, which creates many jobs for the residents.
Wyoming
Wyoming imposes no state income tax and has low property taxes, which significantly reduces residents’ overall tax burden. The state also does not tax retirement income or Social Security, which attracts retirees. Wyoming’s wide-open topography and a strong sense of community make it ideal for those looking for a quieter, rural lifestyle.
Tennessee
In the past, Tennessee used to tax interest and dividends, but it has phased out the Hall Tax to become income-tax-free. Many people choose to move there because of the low cost of living and moderate property taxes. Moreover, the thriving music scene in Nashville and the booming healthcare and manufacturing attract many potential residents.
New Hampshire
New Hampshire has a unique tax structure. There is no state income tax on wages or sales tax but a 5% tax on interest and dividend income. Despite this, the overall tax burden remains low. The state also has low property taxes for those looking for a new place to call home.
North Dakota
While it’s not entirely tax-free, the income tax rates are modest, ranging from 1.1% to 2.9%, depending on income. The highest rate applies to incomes exceeding $440,600, which makes North Dakota an attractive choice for many business people and entrepreneurs. Despite its cold winters, North Dakota’s steady economy attracts residents seeking financial stability.
Arizona
If you live in Arizona, you’ll be required to pay a low-income tax of 2.59% to 4.5%. The state also has low property taxes and does not tax Social Security benefits, which appeals to retirees and low-income individuals. Arizona’s warm climate, especially in cities like Phoenix and Tucson, is a major draw for individuals seeking sunshine year-round.
New Mexico
New Mexico’s state income tax rates range from 1.7% to 5.9%, which is moderate compared to other states. However, the state has other tax benefits, such as low property taxes and several tax exemptions for retirees, including deductions on Social Security benefits and pensions that eventually decrease the cost of living.
Mississippi
Mississippi has some of the lowest state income tax rates, ranging from 3% to 5%, and it offers additional tax advantages such as no estate or inheritance taxes. Property taxes are also among the lowest, and this is why Mississippi is highly affordable for homeowners. The state offers a low overall cost of living and Southern hospitality, which attracts many people.
Louisiana
Residents of Louisiana are subject to moderate state income tax rates, which range from 1.85% to 4.25%. However, the state provides significant tax relief for retirees by exempting Social Security benefits and some retirement income. Louisiana’s Property taxes are among the country’s lowest, which helps offset the impact of state sales taxes.
Indiana
Unlike many states, Indiana has a flat state income tax rate of 3.05%, which makes it one of the more straightforward and low-tax states. The state also offers low property taxes and a favorable business environment that attracts individuals and companies. Indiana’s cost of living is well below the national average, which appeals to families and retirees.
