Here are the US states with no income tax

Maurie Backman

As a U.S. taxpayer, you're probably used to forking over a chunk of your earnings to the federal government. But depending on where you live, you may not lose more of your hard-earned money to income taxes at the state level. In fact, there are seven U.S. states without personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. But just because your state charges zero income tax doesn't automatically make it an affordable place to live. In fact, several states on the list are actually among the more expensive ones in the country.

Map Of Us In Blue
Map Of Us In Blue

Different types of income tax

It's important to make a distinction between taxes on wages versus taxes on other forms of income, like interest income and dividend income. The seven states listed above don't charge income tax at all. There are two additional states, New Hampshire and Tennessee, that don't impose income taxes on wages, but they do collect taxes on dividend and interest income.

See the biggest tax havens in the world:

This content is not available due to your privacy preferences.
Update your settings here to see it.

How do some states get away with no income tax?

State income taxes help provide critical services to residents, so if your state doesn't impose income taxes, you may be wondering where the money to operate comes from. One thing to realize is that just because a state doesn't collect income tax doesn't mean it doesn't charge sales tax.

Take Tennessee, which has the highest sales tax in the country. Though it doesn't charge income taxes on wages, its sales tax is enough to compensate. New Hampshire, meanwhile, charges some of the highest property taxes in the U.S. to help make up for its limited income tax. Furthermore, its in-state college tuition is quite steep compared to most public colleges across the country.

Then there's Washington, whose gas prices are among the highest in the U.S. thanks to the state's gasoline tax. And while Nevada and Texas don't charge income tax, their sales taxes are higher than average.

Just as New Hampshire imposes hefty property taxes, so too do Texas and Florida. Wyoming and Alaska, on the other hand, rely heavily on revenues from the sale of natural resources to stay afloat, which doesn't necessarily cost residents more money. That said, Alaska is actually among the most expensive states to live in due to its remote location.

Are states with no income tax good for retirees?

Retirees are often drawn to states with no income tax because they think that will help their (often-limited) money go further. But avoiding taxes on retirement income can only help so much in states like New Hampshire, where the cost of living is higher overall.

Furthermore, there are some states that charge income tax but don't tax Social Security benefits. Only Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia impose a tax on Social Security, but of those, Colorado and West Virginia are actually fairly retiree-friendly because their other taxes are quite low.

Whether you're a retiree or not, it's important to look at a state's overall tax picture to see whether it makes sense to live there. If you're not retired, you should also consider factors like job growth and salary trends when determining where to live. In some cases, it might make more sense to pay income taxes on wages but bring home a higher salary than live in a state with no income tax but earn a lower wage.

No matter what stage of life you're in, taxes are bound to impact your overall financial picture, so it's smart to get a sense of how your states measures up. Depending on your circumstances, a move to a more tax-friendly state could put more money back in your pocket year after year.

The $15,834 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies..

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.
American Rescue Plan: What Does it Mean for You and a Third Stimulus Check
In January, President Biden proposed a $1.9 Trillion emergency coronavirus relief plan, called the American Rescue Plan. Get updated on the latest related news and information as it evolves in the article below.
Read MoreBrought to you
Where’s My Third Stimulus Check?
The American Rescue Plan, a new COVID relief bill, includes a third round of stimulus payments for millions of Americans. Get updated on the latest information as it evolves.
Read MoreBrought to you
Tax Tips for Uber, Lyft, and Other Car Sharing Drivers
When you're a driver for a ride-sharing company such as Uber, Lyft, or other car sharing service, the most important thing to understand about your taxes is that you are probably not an employee of a ride-sharing company. Drivers for these companies are usually independent contractors, a fact that has tax implications, both at filing time and year-round.
Read MoreBrought to you
Top 9 Tax Law Changes for Your 2020 Taxes
Filing your 2020 taxes will be different due to some stimulus-related legislation and the usual inflation adjustments. Here are a few key tax law changes and other shifts that will affect your 2021 filing.
Read MoreBrought to you