States Without Income Tax: Is There a Benefit to Moving?
States Without Income Tax: Is There a Benefit to Moving?
There are some states without income tax, and amongst many of the high income earners I know, they’d love to live in one. So much so, in fact, that I often get question marks and eye rolls when I tell them that living in California is great. Many of my friends won’t even think about California because of the state income taxes here.
However, is it really all that beneficial to live in states without income tax? That’s what I’m going to look into here, and we’ll see what the outcome is
States Without Income Tax
There are 7 states without income tax, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tenneesee and New Hampshire also don’t tax earned income, HOWEVER, they will tax investment income. So, any interest income or dividend income will be taxed at 5% and 2% respectively (for 2019), and you’ll have to file state income tax return.
Everyone else charges a state income tax that you have to pay. See the chart below for the differences.
https://i.insider.com/5db1f769dee0197a792f8765?width=1200&format=jpeg
https://www.businessinsider.com/personal-finance/states-with-no-income-tax-map
There are some stark differences amongst the states as you can see in the chart. Of the states that do have an income tax, some charge a flat rate (meaning everyone pays the same percentage independent of salary), and some charge progressive rates (meaning the more you make, the more you pay). The rates in the chart reflect the highest tax rates possible in that state. For more information about that you can check out the excel chart at taxfoundation.org.
While it’s a nice thought to say you get to save money when you live in a state without income taxes, it’s important to realize something:
States Have To Make Money Somehow, So If They Aren’t Taxing Your Income, Where Is Their Money Coming From?
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