Where to Keep More of Your Paycheck: States That Slash Income Taxes to the Bone

Nine states now wield the ultimate middle finger to the IRS—zero personal income tax. Texas and Florida lure remote workers with palm trees and tax shelters, while New Hampshire quietly picks off Massachusetts millionaires with its no-tax-on-wages gambit.

Watch out for the fine print: Washington’s capital gains tax claws back some savings, and Tennessee still taxes your stock dividends like it’s 1999. Meanwhile, California and New York keep funding their bureaucracies with 13% marginal rates—because someone’s gotta pay for those pension liabilities.

Pro tip: The ’no income tax’ states always get their pound of flesh elsewhere. Try $3,000 annual property tax bills on a 1,500 sq ft ranch—or $6 craft beers at every ’low cost of living’ dive bar.

The Appeal of Tax-Friendly States for Personal Income

State taxes represent a significant component of an individual’s overall financial landscape, influencing both immediate disposable income and long-term investment strategies. The decisions made by state governments regarding taxation can substantially alter the financial well-being of their residents. Consequently, there is a growing interest among individuals to identify and potentially relocate to states that offer a more favorable tax environment, with the primary aim of optimizing their personal income. This article serves as a professional guide to navigate this complex landscape, presenting a list of states that are generally considered tax-friendly for personal income, followed by a detailed exploration of the specific tax policies and cost of living factors in each.

It is crucial to understand that the concept of a “tax-friendly” state extends beyond merely the absence of a state income tax. A holistic perspective requires an examination of the complete tax burden, encompassing property taxes, sales taxes, excise taxes, and even the overall cost of living. A state with no income tax but high property taxes might not be as advantageous for some individuals as a state with a low income tax but significantly lower property taxes and cost of living. This report aims to provide a nuanced analysis to assist individuals, particularly those involved in investment and finance, in making informed decisions about where they might choose to live to maximize their after-tax income.

 The Top Tax-Friendly States

Based on a comprehensive review of recent data and analyses from various financial sources, the following states consistently emerge as being generally tax-friendly for personal income:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

These states are frequently cited for their low overall tax burden, often highlighted by the absence of a state-level personal income tax. However, as will be explored in detail, the specific tax advantages and disadvantages vary considerably among these states, necessitating a deeper examination of each.

Diving Deeper: Exploring Each Tax-Friendly State

Alaska: No Income Tax, No State Sales Tax, but Higher Property Taxes

• • Income Tax: Alaska stands out as one of the nine states in the United States that levy no personal income tax. This absence of state income tax provides a considerable financial benefit to Alaskans, allowing them to retain the entirety of their earnings at the state level. This advantage applies across various income sources, including wages earned from employment, income derived from retirement and pension funds, earnings from investments, Social Security benefits received by retirees, and paychecks for military personnel stationed in the state. Furthermore, Alaska offers a unique financial opportunity through the Alaska Permanent Fund Dividend (PFD). This annual payment, distributed to eligible residents, represents a share of the state’s oil revenues. While the PFD itself is not subject to state income tax, it is considered taxable income at the federal level. The lack of state income tax in Alaska directly contributes to a higher disposable income for its residents, enabling them to have more funds available for savings, investments, or discretionary spending, which can be a significant factor for those prioritizing income retention.
  • Sales Tax: Adding to its tax-friendly profile, Alaska is also one of the five states that do not impose a state sales tax. This lack of a statewide sales tax offers another avenue for savings, as consumers generally avoid paying state-level taxes on their purchases of goods and services. However, it is important to note that local jurisdictions within Alaska, such as cities and boroughs, have the authority to levy their own sales taxes. These local sales tax rates can vary, with some areas potentially reaching rates as high as 7.85%. Despite the potential for these higher local rates, the statewide average local sales tax rate is relatively low, reported by the Tax Foundation to be around 1.82%. For example, the city of Juneau levies a local sales tax rate of 5% , while the city of Wasilla collects a local sales tax of 2.5%. This variability underscores the importance for potential residents to investigate the specific local sales tax rates in their intended area of residence to accurately gauge the total sales tax impact on their budget.
  • Property Tax: While Alaska offers significant advantages through the absence of income and state sales taxes, its property taxes are generally considered rather high when compared to other states across the United States. The effective property tax rate for owner-occupied homes in Alaska is reported to be around 1.07% by both Kiplinger and the Tax Foundation. It is important to understand that property taxes in Alaska are assessed and administered at the local level , which means the rates can vary considerably depending on the specific municipality. The median annual property tax payment in Alaska is approximately $5,795 , which is higher than the national average. For instance, the city of Anchorage has a property tax rate of around 1.31% , which is above the state average. This suggests that while residents might save on income and state sales taxes, those who own or plan to own property in Alaska could face a significant property tax burden, potentially offsetting some of the financial gains.
  • Excise Tax: Alaska does levy excise taxes on certain goods. The state has a gas tax rate of 8. cents per gallon and an excise tax on cigarettes of $2. per pack. Additionally, there is a refined fuel surcharge of 0. cents per gallon. Local jurisdictions may also impose excise taxes on items like alcohol. The state’s gas tax rate is notably low compared to the national average.
  • Cost of Living: The overall cost of living in Alaska is generally higher than the national average. For example, the cost of living index for Anchorage has been reported to be significantly above the national average. This higher cost of living, particularly in areas such as housing and transportation, needs to be carefully considered alongside the tax benefits offered by Alaska. While residents save on income and state sales tax, these savings might be partially or fully consumed by the increased expenses in other areas.

Florida: No Income Tax, Sales Tax Exemptions, but Property Tax Concerns

• • Income Tax: Florida is another one of the nine states that does not levy a state income tax on personal income. This absence of state income tax means that residents of Florida do not pay state taxes on various forms of income, including distributions from pensions, 401(k)s, 403(b)s, and IRAs, as well as Social Security benefits and investment income. This provides a significant financial incentive for individuals, particularly retirees and those with substantial investment income, as they can retain a larger portion of their earnings and retirement savings.
  • Sales Tax: Florida has a state sales tax rate of 6%. In addition to the state rate, many Florida counties have a discretionary sales surtax, which can increase the combined sales tax rate. The average combined state and local sales tax rate in Florida is around 7.00%. However, Florida offers some relief through exemptions from sales tax on essential items such as groceries and prescription drugs. Furthermore, recent tax relief measures have eliminated the state sales tax on numerous baby and toddler essentials, including diapers and baby wipes, as well as some feminine hygiene products. These exemptions help to mitigate the overall tax burden on families and individuals by reducing the cost of necessary goods.
  • Property Tax: Property taxes are a significant consideration for Floridians, even with the absence of income tax. The average effective property tax rate in Florida for owner-occupied homes is around 0.71%. While this rate is below the national average, property taxes vary widely across the state by county. The median annual property tax payment in Florida is approximately $2,386. Florida offers a homestead exemption for primary residences, which can provide a reduction in taxable value and thus lower the property tax bill. Despite this exemption, property taxes remain a notable expense for homeowners in Florida, and potential residents should research rates in their specific county of interest.
  • Excise Tax: Florida levies excise taxes on certain goods, including gasoline (38. cents per gallon) and cigarettes ($1. per pack). The state also charges excise taxes on alcoholic beverages, with rates varying based on the type and alcohol content of beer, wine, and liquor. Florida’s gas tax rate is relatively higher compared to some other states without income tax.
  • Cost of Living: The overall cost of living in Florida is slightly higher than the national average. Housing costs, in particular, can be competitive and expensive in many desirable areas of the state. The cost of living and home prices can vary significantly between different cities and regions within Florida. Potential residents should consider these factors alongside the tax benefits when evaluating the overall affordability of Florida.

Nevada: No Income Tax, No Corporate Income Tax, but Higher Sales Tax

• • Income Tax: Nevada is another state that does not impose a state income tax on individuals. This lack of a state income tax applies to all types of income earned by residents, including wages, salaries, income from retirement accounts, investment earnings, and Social Security benefits. This provides a direct financial benefit to Nevada residents by increasing their take-home pay.
  • Corporate Income Tax: Nevada also distinguishes itself by not levying a corporate income tax. This absence of both personal and corporate income taxes contributes to Nevada’s reputation as a business-friendly state, which can indirectly benefit individuals through a stronger economy and job market.
  • Sales Tax: While Nevada offers the advantage of no income tax, it has a state sales tax rate of 6.85%. Additionally, local jurisdictions in Nevada can impose their own sales taxes, leading to a higher combined sales tax rate. The average combined state and local sales tax rate in Nevada is around 8.24% , which is considered relatively high compared to other states. However, Nevada does offer exemptions from sales tax on essential items such as groceries and prescription drugs. Furthermore, starting January 1, 2025, infant and adult diapers will also be exempt from sales tax. Despite these exemptions, the higher sales tax rate can impact the daily expenses of Nevada residents.
  • Property Tax: In contrast to its sales tax, Nevada has one of the lowest effective property tax rates in the United States, at around 0.44% for owner-occupied homes. The median annual property tax payment in Nevada is also relatively low. Property taxes in Nevada are calculated based on the assessed value of the property, which is 35% of its taxable value (cash value of land plus replacement cost of buildings minus depreciation). This low property tax rate is a significant advantage for homeowners in Nevada, helping to offset the higher sales tax.
  • Excise Tax: Nevada levies excise taxes on gasoline (23. cents per gallon) and cigarettes ($1. per pack). The state also charges excise taxes on alcoholic beverages, with rates varying based on alcohol content. Additionally, vehicle owners in Nevada are charged an annual “governmental services tax” based on the vehicle’s value and age. Nevada’s gas tax rate is slightly above the national average.
  • Cost of Living: The overall cost of living in Nevada is slightly higher than the national average. Housing costs, in particular, can be competitive and expensive in certain areas, such as around Las Vegas and Reno. The affordability of Nevada can vary depending on the specific city and the local housing market conditions.

New Hampshire: No Income Tax (Repealed Interest & Dividends Tax), High Property Taxes

• • Income Tax: New Hampshire is recognized as one of the nine states with no broad-based state income tax. Historically, New Hampshire had a tax on interest and dividends income, but this tax was fully repealed in 2025. This means that residents of New Hampshire now benefit from the absence of state taxation on all forms of income, including wages, salaries, interest, dividends, retirement income, pensions, and Social Security benefits.
  • Sales Tax: New Hampshire stands out as one of the few states with no state or local sales taxes. This lack of a general sales tax can result in significant savings for consumers on a wide range of purchases. However, New Hampshire does impose a Meals and Rooms Tax of 8.5% on prepared food, hotel accommodations, and car rentals.
  • Property Tax: While New Hampshire offers the advantage of no income or sales tax, it has one of the highest property tax rates in the United States. The effective property tax rate in New Hampshire is around 1.61%. Property taxes are determined and collected at the local level, leading to variations between different cities and towns. The median annual property tax payment in New Hampshire is quite high compared to the national average. For example, property tax rates vary significantly, with some towns having rates around $11-$16 per $1,000 of valuation, while others can be as high as $26 per $1,000. This high property tax burden is a significant factor to consider for those looking to relocate to New Hampshire.
  • Excise Tax: New Hampshire levies excise taxes on gasoline (23. cents per gallon) and cigarettes ($1. per pack). The state also has a vehicle excise tax, which is an annual tax based on the vehicle’s value.
  • Cost of Living: The overall cost of living in New Hampshire is higher than the national average. Housing costs are a major contributor to this higher cost of living. The cost of living can also vary between different cities within the state, such as Manchester and Nashua.

South Dakota: No Income Tax, No Corporate Income Tax, Moderate Sales and Property Taxes

• • Income Tax: South Dakota is another of the nine states that does not levy a state income tax on individuals. This absence of state income tax applies to all income, including wages, salaries, retirement and pension funds, investment earnings, Social Security benefits, and military pay.
  • Corporate Income Tax: South Dakota also does not impose a corporate income tax, making it an attractive state for businesses as well.
  • Sales Tax: South Dakota has a state sales tax rate of 4.5%. Municipalities in South Dakota can also impose a municipal sales tax, use tax, and gross receipts tax, with general municipal sales tax rates up to 2%. The average combined state and local sales tax rate in South Dakota is around 6.11%. Prescription drugs are exempt from sales tax, but groceries are generally taxable.
  • Property Tax: The average effective property tax rate in South Dakota is 1.01%. The median annual property tax payment is around $2,590. Property taxes are implemented at the local level, and rates can vary by county and municipality.
  • Excise Tax: South Dakota levies excise taxes on gasoline (30 cents per gallon) and cigarettes ($1. per pack). The state also imposes a 2% excise tax on the gross receipts of construction projects.
  • Cost of Living: South Dakota generally has a lower cost of living than the national average. It is often ranked among the most affordable states in the US.

Tennessee: No Income Tax, but High Sales Tax

• • Income Tax: Tennessee is another of the nine states with no personal income tax. This means that residents do not pay state tax on wages, salaries, retirement income, or investments. Tennessee has phased out its limited income tax on interest and dividends (the Hall Tax), with full repeal in 2021.
  • Sales Tax: Tennessee has a state sales tax rate of 7%. Local governments can also levy sales taxes, resulting in an average combined state and local rate of around 9.55%, which is among the highest in the nation. Groceries and clothing are generally taxable in Tennessee.
  • Property Tax: The average effective property tax rate in Tennessee is relatively low at 0.48%. The median annual property tax payment is also low compared to the national average. Property taxes are set at the local level and can vary between counties and cities.
  • Excise Tax: Tennessee levies excise taxes on gasoline (27. cents per gallon) and cigarettes ($0. per pack). The state also has franchise and excise taxes on businesses.
  • Cost of Living: Tennessee generally has a lower cost of living than the national average. It is often ranked as one of the most affordable states in the US.

Texas: No Income Tax, No Corporate Income Tax, but High Property Taxes

• • Income Tax: Texas is one of the nine states with no personal income tax. This applies to all forms of income, including wages, salaries, retirement income, and investments.
  • Corporate Income Tax: Texas does not impose a corporate income tax but does levy a state gross receipts tax known as the “margin tax”.
  • Sales Tax: Texas has a state sales tax rate of 6.25%. Local jurisdictions can also add sales taxes, resulting in an average combined rate of around 8.20%. Most groceries and prescription drugs are exempt from sales tax.
  • Property Tax: Property taxes in Texas are among the highest in the US. The average effective property tax rate is around 1.47%. Property taxes are set and collected at the local level. Texas offers a homestead exemption, and recent increases have occurred.
  • Excise Tax: Texas levies excise taxes on gasoline (20 cents per gallon) and cigarettes ($1. per pack). The state also has mixed beverage taxes on alcohol.
  • Cost of Living: The overall cost of living in Texas is generally lower than the national average. There are variations in cost of living across different cities and regions within Texas.

Washington: No Income Tax, but High Sales Tax and Capital Gains Tax for High Earners

• • Income Tax: Washington is one of the nine states with no state income tax on wages, but it does impose a 7% tax on long-term capital gains exceeding $270,000 for high earners. This capital gains tax applies to profits from the sale of assets held for more than one year, such as stocks and bonds. Retirement income and Social Security are generally not taxed at the state level.
  • Sales Tax: Washington has a state sales tax rate of 6.5%. Local jurisdictions can add significant taxes, resulting in an average combined rate of around 9.38%, which is among the highest in the US. Groceries and prescription medications are exempt from sales tax.
  • Property Tax: The average effective property tax rate in Washington is below the national average at 0.76%. However, due to high property values in many areas, the median annual property tax payment can be significant. Washington’s constitution limits the total of general, non-voter approved property tax rates to 1% of a property’s market value.
  • Excise Tax: Washington levies a real estate excise tax (REET) with a graduated rate structure. The state also has a relatively high gas tax rate of 52. cents per gallon and a high cigarette excise tax rate of $3. per pack.
  • Cost of Living: The overall cost of living in Washington is significantly higher than the national average, primarily driven by high housing costs, especially in the Seattle metropolitan area. The cost of living can vary between cities like Seattle and Spokane.

Wyoming: No Income Tax, No Corporate Income Tax, Low Sales and Property Taxes

• • Income Tax: Wyoming is one of the nine states with no personal income tax. This applies to all forms of income, including wages, salaries, retirement income, and investments.
  • Corporate Income Tax: Wyoming also does not impose a corporate income tax.
  • Sales Tax: Wyoming has a state sales tax rate of 4%. Counties and municipalities can add taxes, resulting in an average combined rate of around 5.44%, which is relatively low. Groceries and prescription drugs are exempt from sales tax.
  • Property Tax: The average effective property tax rate in Wyoming is low at 0.55%. The median annual property tax payment is also quite low. Wyoming offers a homeowner property tax exemption effective in 2025.
  • Excise Tax: Wyoming levies excise taxes on gasoline (24 cents per gallon) and cigarettes ($0. per pack).
  • Cost of Living: The overall cost of living in Wyoming is lower than the national average. It is often ranked as one of the most affordable states in the US.

 Beyond Income Tax: Other Factors to Consider

While the absence of state income tax is a significant factor in determining tax-friendliness, a comprehensive evaluation necessitates a broader perspective. Property taxes, for instance, represent a recurring and potentially substantial expense, especially for homeowners. The level of property tax can significantly impact the overall cost of living and may offset some of the savings from not paying income tax. Similarly, sales taxes affect the cost of everyday goods and services. States with high sales tax rates can diminish the financial benefits of having no income tax, particularly for individuals with lower incomes who tend to spend a larger portion of their earnings. Excise taxes on specific goods like fuel, tobacco, and alcohol also contribute to the overall tax burden, although their impact is more targeted to consumers of these products.

Crucially, the overall cost of living plays a vital role in determining the true financial advantage of a state’s tax policies. A state with very low taxes but an exceptionally high cost of living might not be as beneficial as it initially appears. The increased expenses for basic necessities such as housing, food, and transportation can negate the savings from lower taxes. Conversely, a state with slightly higher taxes but a significantly lower cost of living could prove to be more affordable in the long run. Ultimately, the assessment of a state’s tax-friendliness is highly personal and depends on an individual’s unique financial circumstances and priorities.

Making the Right Choice: Tailoring Your Decision

Choosing the most tax-friendly state for personal income requires a careful consideration of individual needs and financial situations. There is no one-size-fits-all answer, and the optimal choice will depend on a variety of factors. Individuals should consider their income level and sources, as the benefits of no income tax might be more pronounced for those with higher earnings or substantial investment income. Homeownership status is also critical, as property taxes can vary significantly and represent a major expense. Spending habits will influence the impact of sales and excise taxes, with high-spending individuals potentially feeling a greater effect from high sales tax rates.

Age and retirement planning are also important considerations. Retirees might prioritize states with no income tax on retirement benefits and lower overall cost of living. Healthcare costs and access should also be evaluated, as these can vary considerably between states and significantly impact personal finances. Finally, desired lifestyle and the overall cost of living in different regions of a state should be factored into the decision-making process. It is advisable for individuals to utilize online tax calculators that allow for a comprehensive comparison of state and local taxes based on their specific financial profiles. Consulting with a qualified financial advisor can also provide personalized guidance tailored to individual circumstances and financial goals.

 Maximizing Your Income Through Strategic State Tax Planning

In conclusion, exploring tax-friendly states for personal income involves a multifaceted analysis that extends beyond simply identifying states with no income tax. While states like Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming offer the advantage of no or limited state income tax, each presents a unique combination of other tax policies and cost of living factors. The decision of which state is the most financially advantageous depends heavily on individual circumstances, income sources, spending patterns, and housing preferences.

It is crucial to look beyond the single factor of income tax and consider the entire tax landscape, including property taxes, sales taxes, and excise taxes, as well as the overall cost of living. By carefully evaluating these elements and aligning them with personal financial goals and priorities, individuals can make strategic decisions about their state residency to potentially maximize their after-tax income and enhance their overall financial well-being. Thorough research into the specific tax laws and cost of living in areas of interest, coupled with a careful consideration of personal circumstances, is essential before making any relocation decisions based on tax advantages.