Should You Move to a State with No Income Tax in 2021

Let’s be honest, forking out your hard-earned money to Uncle Sam sucks, least of all when you have to go through the painful drill of tax preparation.

However, looking at it from a glass-half-full perspective, paying our taxes is what keeps the federal government machinery functional, so that it can provide a range of vital services, ranging from defense to social security, health to education, etc.

But federal taxes are only half the story, depending on where you live. As of 2021, nine states in total won’t tax your income. These include:

●      Alaska

●      Florida

●      Nevada

●      New Hampshire

●      South Dakota

●      Tennessee

●      Texas

●      Washington

●      Wyoming

Should You Move to a State with No Income Tax in 2021

Benefits of Moving to a No-Income Tax State

Of course, if your income is not subject to state taxation, it means you will be able to save more of your money. It is for this reason that high earners prefer no-income states as the impact on the pocket is significant.

With more money in your bank account, you can invest or save for school tuition, retirement, vacation, etc.

However, it’s also important to recognize that these states also have to keep operations running, so in one way or another they need to find ways to make up for these monies.

The lack of a state income tax doesn’t mean you won’t pay other taxes like property, sales, and estate taxes. Oftentimes, these taxes tend to be on the high end in no-income states.

For example, Texas and New Hampshire may lack a state income tax, but their property taxes are some of the highest in the country.

Therefore, before you rush to book long distance movers New York or moving companies from other corners of the country to relocate to a no income tax state, it’s important to think about the broader picture.

Often, it will involve a tradeoff in one form or another, as we’ve alluded to in the Texas and NH examples above.

What to Expect in No Income Tax States

If you’re contemplating a move to one of the no income tax states in 2021, here’s a brief overview of the tradeoffs you should expect in exchange for receiving a non-taxable income at the state level.

1.  Alaska

You won’t pay state income tax or sales tax when you move to the Last Frontier, but some municipalities are allowed to levy state taxes.

Plus, Alaska has a high cost of living despite the light tax burden.

2.  Florida

The Sunshine State relies heavily on property taxes and sales taxes, although that will vary between counties.

3.  Nevada

A lot of the state revenue comes from sales taxes and fees (which are above-average) although a lot of the fees are related to gambling.

4.  New Hampshire

You will not pay any state income tax or sales tax in the Granite State, but any dividends or interest income is subject to a 5 percent tax – provided, though, it exceeds $2,400 or $4,800 per individual or joint filers respectively.

But blind, disabled, and the elderly may be liable for some exemptions.

5.  South Dakota

In addition to not taxing wage incomes, South Dakota also has one of the lowest sales tax in the country at 4.5 percent.

But localities are allowed to collect up to 2 percent on top of that, and the revenue department has a range of other special taxes.

6.  Tennessee

At the moment, Tennessee is in the process of phasing out tax on interest and dividends (aka “Hall Tax”).

But be prepared to part with 7 percent in sales tax, one of the highest in the country.

7.  Texas

Sales tax is high (6.25 percent) and municipalities can level an additional 1.94 percent, raising it to 8.19 percent.

8.  Washington

A 6.5 percent sales tax ranks Washington 9th-highest in the country for sales taxes. Additional taxes can raise this up to 9.23 percent.

9.  Wyoming

It may be last on the list, but Wyoming is a dream. Overall, it’s the most tax-friendly state in the nation.