Is Moving to a State With No Income Tax Worth It?

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Income tax is only one consideration when deciding where to live. Discover what else to ponder as you pick a new home state. 

As of 2023, nine states have no state income tax at all. And this might sound excellent, especially if you currently live in a state on the higher end of the state income tax spectrum like I do (South Carolina).

Of course, all other things being equal, it’s better to pay less in taxes. But in the real world, all other things are not equal when comparing one state with another. Here’s what you should keep in mind when considering whether moving to a state without an income tax could make sense for you.

What states have no income tax?

I won’t keep you in suspense. As of 2023, there are nine states that have no income tax. In alphabetical order, they are:

AlaskaFloridaNevadaNew HampshireSouth DakotaTennesseeTexasWashingtonWyoming

The reasons these states have no income tax vary. After all, states need to generate revenue to run their government and provide essential services from somewhere. Some — like Florida and Nevada — get a lot of revenue from tourism. Alaska makes a lot of money from oil. And some, as we’ll discuss in the next section, generate revenue in other ways.

Just one part of the financial picture

Obviously, there’s a lot more that is involved with choosing where you live than state income taxes. Maybe you want to live within driving distance to your relatives, or you don’t want to live somewhere with cold winters. But for our purposes, let’s just look at the financial considerations of choosing a place to live.

To put it mildly, state income tax is just one of many costs of living in a certain part of the United States. Here are a few other things to consider that could potentially negate (or add to) your savings on state income taxes.

Home affordability

As of June 2023, the median home sales price in the United States is $416,100. But some areas cost significantly more or less. Looking at our no-income-tax states list, the average home value in Washington is $593,406. The difference in your mortgage payment or rent could more than exceed the state income tax you’ll pay elsewhere.

Insurance costs

The national average auto insurance policy costs $1,682 per year, but some states charge significantly more for car insurance. In Florida, for example, the average policy is $2,560 annually, which is 52% greater than the average. Nevada, Texas, and Wyoming also have above-average auto insurance costs, according to Carinsurance.com. Home insurance is a similar story. Texas has the fifth-highest homeowners insurance rates in the nation, and in some parts of Florida, insurance costs have doubled over the past few years due to increased natural disaster damages combined with rapidly rising property values.

Property taxes (and not just on houses)

One of the biggest sources of revenue for state and local governments is property taxes, and some of the states without income taxes have above-average property taxes that help make up for it. New Hampshire has the third-highest property tax rates in the U.S., and South Dakota, Washington, Alaska, and Texas are also in the top half of the list. Plus, half of U.S. states (including New Hampshire, Nevada, and Wyoming) also charge annual property taxes on vehicles you own.

Sales taxes

Last but certainly not least, most states have sales taxes, and that’s especially true for some of the states with no income tax. In fact, with a combined state and local sales tax of 9.548% on average, Tennessee has the highest sales tax in the U.S.

The bottom line

There are two key takeaways. First, the absence of income tax isn’t nearly as important as living somewhere you love and that meets your needs. And second, just because a state doesn’t have any income tax doesn’t automatically make it a tax-friendly place to live. There are several other financial factors to consider as well, so make sure to evaluate the whole picture when choosing your next state to call home.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.

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