Income tax is the tax an assesses has to pay to the government on the income he earned during the assessment year through different heads of income i.e., House property, Salary, Business or Profession, Capital Gain, or Other Sources. In today’s world, living in a tax-free country or state has become a dream for people. Although it is not possible to avoid all the taxes that the government imposes on a general person. However, there are some states in the USA which don’t impose tax on the income of their citizens. These states include: Texas, South Dakota, Alaska, Tennessee, Florida, Wyoming, Nevada, Washington, and New Hampshire. The first seven states in the list have no income tax. New Hampshire is the state that collects tax on dividend income and interest income but not on emoluments, whereas the persons who earn more capital gain are required to pay tax in Washington.The other states either have a progressive rate tax structure, flat income tax structure or alternative tax structure.
Why is Income Tax not charged in some States?
State income tax is levied at the state level not on the union level so it’s entirely up to the lawmakers. There can be many reasons for not having an income tax. The main reason can be just to provide incentives to new residents or the persons of the state to earn income from other sources. For example, the state of Alaska in the US waived off income tax after an oil boom in the 1970s. The main revenues of the state come from oil industry activity. The state decided that It could receive most of the income it needed from the oil industry so the state should not charge income tax on its resident’s income. He is on the list of the nine states of the USA that charge no income tax along with additional details:
1. Texas
Texas is one of the most populous states in the United States. There is no income tax in Texas. To fulfill the needs of the state and fund the services of the state, the state government of Texas charges tax on property and sales. The sales tax rate of Texas is 6.25%, and the average local sales tax of Texas is 1.95%. The housing and grocery cost of taxes is low because of this it is among one of the affordable states of the USA. The average regular price of gas in Texas is $2.78, while the value of the median home in Texas is $187.200.
2. South Dakota
South Dakota is a non-coastal state of the United States. From a financial viewpoint, South Dakota is an attractive state, some of the reasons are: that there are desirable trusted laws in South Dakota, with no income tax. It is a perfect place for residential purposes with relaxed standards. The sales tax rate of South Dakota is 4.5% and the average local sales tax of South Dakota is 1.90%. There is the average per capita property tax in South Dakota. The average regular price of gas in South Dakota is $3.11, while the value of the median home in South Dakota is $174,600.
3. Alaska
Alaska is a non-contiguous state in the United States. Alaska is known as one of the most tax-friendly states in the United States. There is no income tax or sales tax in Alaska, but the higher property taxes of Alaska which account for 3.54% of its 4.93% total tax burden, cover it all. There is a very poor quality of life in Alaska. The rate of goods and services in Alaska is higher including utilities and groceries, while the state comes in the sixth highest cost of living in the country. The average regular price of gas in Alaska is $3.71, while the value of the median home in Alaska is $275, 600.
4. Tennessee
There are no taxes on investment income and interest in Tennessee, which makes it an income-tax-free state. Tennessee is a landlocked state in the United States. According to the Lincoln Institute, the per capita property tax of Tennessee is $834. The statewide sales tax of Tennessee is 7% which gives it a larger portion of revenue, while the average local sales tax of Tennessee is 2.55%. According to the tax foundation, the combined rate of tax of Tennessee in 2023 was the second highest in the country. Still, Tennessee is a low-tax state, with a local tax rate of 7.6%. According to the tax foundation, the tax rate in Tennessee is the third lowest in the United States. The average regular price of gas in Tennessee is $2.79, while the value of the median home in Tennessee is $177,600.
5. Florida
Florida is in the southeastern region of the United States. If you are moving to Florida you will get where you tax benefit. There are no state or inheritance taxes and income taxes in Florida. In 2022, the local effective tax rate in Florida is 9.1%. According to the tax foundation, it was the 11th lowest in all of the country. The state sales tax rate in Florida is 6%, and 1.2% of sales tax is applied by the local government. The property taxes in Florida are below average and residents who are 65 or above and Veterans are given extra tax exemption. Florida is a heaven for its residents, the cost of living is a little higher in Florida. The people of Florida have to pay higher rates for groceries, housing, and other utilities. The average regular price of gas in Florida is $3.15, while the value of the median home in Florida is $232,000.
6. Wyoming
Wyoming is a non-contiguous state in the United States. Wyoming is one of the most tax-friendly states in the United States. In 2022 the state local tax rate of Wyoming was 7.5%. The sales tax rate of Wyoming is 4% and the average local sales tax rate of Wyoming is 1.36%. The larger portion of the revenue of the state is covered through its property tax, and Mexican taxes are covered by mineral production which includes oil, gas, and coal. For low-income homeowners, Wyoming provides property tax relief. The housing cost in Wyoming is quite affordable which is below the national average. The average regular price of gas in Wyoming is $ 3.31, while the value of the median home in Wyoming is $228,000.
7. Nevada
Nevada is a landlocked state in the United States. There is no income tax in Nevada, but in 2022 the local effective tax rate of Nevada was not below average; it was 9.6%. According to the tax foundation, it was the 18th lowest tax rate in all over the country. The sales tax rate in Nevada is 6.85 %, and the average local self-sex rate in Nevada is 1.38%. According to the Tax Foundation, it is the 13th highest tax rate in the country. Nevada gets tax revenue from tourist sales. The cost of living in Nevada is a little higher, especially in groceries and housing. The average regular price of gas in Nevada is $4.00, while the value of the median home in Nevada is $290,200.
8. Washington
Washington is in the Pacific Northwest region of the United States. There is no income tax in Washington because of this it is the home for some of the top companies like Starbucks, Microsoft, and Amazon. The rainy and cloudy weather of Washington is appealing. There is no income Tax in Washington, but the state-local tax of Washington is highest which is 10.7 % in 2022. According to the tax foundation, it is the 30th lowest tax rate in the country. The vice president of the state projects of tax foundation, Jared Walczak said that as there is no income tax in Washington it has the highest tax burden in comparison to other states. The average regular price of gas in Washington is $4.13, while the value of the median home in Washington is $ 366,800.
9. New Hampshire
New Hampshire is in the Northeastern region of the United States. There is no wage and salary tax in New Hampshire. New Hampshire gets tax benefits from property taxes. The average regular price of gas in New Hampshire is $3.09, while the value of the median home in New Hampshire is $272,300.
Conclusion
These states of the USA have no income taxes. However, various other taxes are implied in these states. The citizens of these states are getting various benefits due to the exemption of income taxes from the state.
