According to ITEP research, these taxes place a heavier burden on the poor. The reason for this is that low-income people in the state spend the lion`s share of their take-home pay on things that are taxable for VAT. The wealthy, who can save some of their income in their 401(k)s and other investments, have a much lower proportional exposure to sales tax. Sales taxes, for example, are considered „regressive.” They do not change according to the consumer`s income level. They treat everyone equally. This also applies to taxes on food, gasoline and other essential consumer goods. Everyone wants a lower tax bill. One way to do this could be to live in a state without income tax. Currently, eight states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy income taxes. John Waggoner covers all financial matters for AARP, from budgeting and taxes to retirement and Social Security. Previously, he was a journalist for Kiplinger`s Personal Finance and USA Today, and wrote books on investing and the 2008 financial crisis. Waggoner USA Today`s investment column has been published in dozens of newspapers for 25 years. Each of these states has a personal income tax floor, deductions, exemptions, credits, and different definitions of taxable income that determine what a citizen actually pays.
States without income taxes could require residents and visitors to pay more sales tax on food, clothing and other goods, as is the case in Washington. A state sales tax of 6.5% combined with municipal and/or municipal sales tax rates results in a sales tax of up to 9.29%. The Tax Foundation estimates the state`s total tax burden at 9.8 percent, making it the 24th cheapest state, the lowest of all states without income tax and behind other tax-levied regions, including Indiana, South Carolina, Utah, and Missouri. However, others point out that the lack of tax revenue could come at a cost, particularly when it comes to spending on infrastructure and education. South Dakota and Wyoming, for example, spent the least of all states on education, according to a 2021 analysis by the Census Bureau. Not only does South Dakota not levy income tax, but the state`s average sales tax rate is 4.5 percent, making it one of the lowest in the country. Instead of collecting sales and income taxes, the Alaskan government relies on other types of taxes (including excise and departure taxes) to fund its operations. Most of the revenue comes from gas production and oil drilling. But due to falling oil prices, the governor proposed restoring income taxes to reduce his budget deficit. The above article aims to provide general financial information designed to educate a broad segment of the public.
There is no personalized tax, investment, legal, business and professional advice. Before taking action, you should always seek the help of a professional who is familiar with your particular situation for advice on taxes, investments, the law or other business and professional matters that affect you or your business. While moving to one of these tax-friendly states may seem like the ultimate way to cut your taxes, you may not always save more money in the long run. Although Florida`s personal income tax was repealed in 1855, its residents must pay other types of taxes, including corporate income taxes and sales taxes. Florida property taxes imposed by local governments are higher than in most states. The decision to move to a country without income tax depends on your personal financial situation and individual priorities. Families with college-age students may not want to move to a state without income tax if it means paying more tuition. In the meantime, if the majority of your household budget is spent on food and clothing – items subject to VAT – you may not save a lot of money in the long run. State inheritance tax should also be considered, especially if you are nearing retirement and hope to eventually pass on an asset while you plan to move.
„We don`t see as many year-over-year increases in sales tax rates, but we do see a lot of adjustments in income tax,” she says. „If you rely heavily on income tax compared to other sources of income, you`ll have higher burdens.” This could be partly due to the fact that they attract more workers. States that have no income tax received a net inflow of 285,000 new residents from the 41 states that levied income tax, according to 2018 IRS figures, for which data is available. The Tax Foundation interprets the individual tax burden based on what taxpayers actually spend on state and local taxes, rather than reporting those expenditures from the perspective of state revenue used by the Census Bureau. The 2019 ranking of state and local tax burdens found that Americans pay an average rate of 9.9% in state and state taxes. South Dakota is one of the most tax-friendly states, especially for retirees. Sales tax rates are among the lowest in the country and the average effective property tax rate is just above the national average. Personal and wealth taxes are levied by local governments and used to fund public school systems and projects and services at the city and district levels. The following table shows the differences between states without income tax. The first two columns show the total tax burden on the state (state income tax + sales/excise taxes + property taxes) as a percentage of personal income, followed by the state`s rank (the best the worst) among the 50 states. Despite the challenges faced by tax-free states, some seem to strike a balance between low taxes, affordability, and providing a great place to live. Others are struggling.
One thing is clear: low taxes alone are not enough to give a complete picture of the cost of living in any of the countries listed here. „They see a trade-off when it comes to the biggest taxes that states levy,” Loughead said. „If you`re a person with very high incomes, you`ll probably think twice before living in a state with high income taxes, especially if there`s an adjacent state where you can live.” If you want to be very tax conscious, you should consider all types of taxes you can pay. WalletHub rates New York State with the highest total tax burden of about 12.8% of income, followed by Hawaii at 12.2%. Alaska has the lowest tax burden at about 5.1 percent, while Tennessee is in second place at 5.7 percent. How to apply for a tax extensionHow to file an amended tax returnAre medical expenses tax deductible? What is the penalty for late filing tax returns? What is inheritance tax? How long to keep tax records After filing your taxes, you can get a state tax refund or a federal tax refund — or both if you live in a state that taxes income.