It’s safe to say that everybody wants to lower their tax bill. One way to do this is to live in one of the states with no income tax. Nine U.S. states currently don’t tax wages. Two states (New Hampshire and Tennessee) are phasing out all taxes on investment income and interest by 2025. In addition, 11 states do not tax retirees’ income, and 20 states exempt all military retirement pay from taxation for retired veterans.
It’s important to note that states that don’t tax personal income typically replace lost revenue with other taxes or offer fewer services to their residents.
Let’s go over these no income tax states in more detail.
9 States with No Income Tax for All
Here are the nine states that don’t have income tax.
#1 Alaska
Alaska has no income tax or sales tax. The state and local tax burden, which includes income, property, sales, and excise taxes, is only 5.10% of personal income, making Alaska the lowest in the nation. Keep in mind that the cost of living in Alaska is high due in large part to its remote location.
Total Tax Burden: 5.10%
#2 Tennessee
As of 2016, legislation passed a plan to lower taxes on investment income, which will be eliminated by 2021. Tennessee has the highest sales tax and beer tax in the nation, making up for lost revenue from income tax. The state tax burden is 6.28%, the second lowest in the country.
Total Tax Burden: 6.28%
#3 Florida
Florida has no income tax and carries the third lowest tax burden in the country, at 6.56%. While sales and property taxes are above the national average, Florida is more affordable than a few other states. With above-average housing costs and a high cost of living, Florida ranks 35th in affordability. However, the Sunshine State ranks #13 on the “Best States to Live” list according to U.S. News.
Total Tax Burden: 6.56%
#4 New Hampshire
New Hampshire is one of two states that does not tax wages but does tax dividends and interest. However, recently, the state passed legislation to phase out interest and dividends taxes by 2025. New Hampshire’s state and local tax burden is just 6.86%, ranking fourth in the country.
Total Tax Burden: 6.86%
#5 South Dakota
Like most states that don’t have income tax, South Dakota relies heavily on revenue from cigarette and alcohol taxes. It has above-average property taxes but below-average sales taxes nationwide. The Mount Rushmore state is tax-friendly for retirees and carries an overall tax burden of 7.28%, making it the eighth lowest state in the U.S.
Total Tax Burden: 7.28%
#6 Wyoming
Wyoming is the second-least populated state (second only to Alaska). Residents don’t pay personal or corporate state income taxes. Additionally, there’s no tax on retirement income and low property and sales tax rates. Wyoming ranks 10th in the nation for an overall tax burden of 7.51%.
Total Tax Burden: 7.51%
#7 Texas
Personal income tax in Texas is forbidden in the state’s constitution. As such, the Lone Star state counts on money from sales and excise taxes. With higher sales and property taxes, the overall tax burden for residents is 8.18%, ranking 18th in the nation.
Total Tax Burden: 8.18%
#8 Washington
Due largely to the lack of corporate income tax, Washington state is home to several major employers and a younger population. With higher sales, excise, and gasoline taxes than most states, Washington’s overall tax burden is 8.20%, #19 in the U.S.
Total Tax Burden: 8.20%
#9 Nevada
Nevada is another state with no income tax for its residents. Relying mostly on revenue from high sales taxes. The overall tax burden for Nevadans is 8.26%, making it the worst state with no income tax. However, the tax burden puts Nevada at 22 out of 50 compared to all states.
Total Tax Burden: 8.26%
12 States with No Income Tax for Retirees
Here are 12 states are exempt from paying taxes on income from retirement accounts.
#1 Alaska
Alaska isn’t typically a place that many people think to retire. While the Last Frontier State can have some extreme weather conditions, it knows how to treat its senior citizens. If you live in Alaska, income from a 401(k), IRA, or pension is tax-exempt.
#2 Florida
Have you ever wondered why so many soon-to-be retirees decide to pick up and move to Florida? Not only does it offer warm weather, sandy beaches, and palm trees, but the Sunshine State also does not tax retirement income.
#3 Illinois
Are you looking for a tax-advantaged state somewhere in the Midwest to retire? Illinois is the only state in the region where retirement accounts are entirely tax-exempt. However, there’s a catch. Income received from a pension or 401(k) must come from a qualified employee benefit plan to be tax-free.
#4 Mississippi
If you are over 59 and a half, Mississippi will not tax your retirement income. However, the Magnolia State will tax your 401(k), IRA, and pension income for those who retire early.
#5 Nevada
Nevada isn’t good for just gambling. The Silver State won’t tax retirement income, or any income, because it doesn’t have an income tax.
#6 New Hampshire
New Hampshire is the only state with no income tax in New England. If you retire in the Granite State, you can completely avoid paying state taxes from your 401(k) plan, IRA or pension. New Hampshire does impose taxes on interest and dividends.
#7 Pennsylvania
Retirees looking to save on retirement taxes can do so by living in Pennsylvania. Eligible employee-sponsored retirement plans are tax-free income in the Keystone State. However, just like Mississippi, those who retire early must pay taxes on retirement income.
#8 South Dakota
One of the most tax-friendly states for retirees in America, South Dakota has no state income tax and no tax on retirement income. If there was a national monument (like Mount Rushmore) for low-tax states, South Dakota would be a centerpiece.
#9 Tennessee
The Volunteer State only taxes income on interest and dividends, nothing else. This makes Tennessee another extremely tax-friendly state for all residents, not just retirees.
#10 Texas
Texas won’t mess with your retirement income. In fact, Texas won’t mess with any of your income. The Lone Star State doesn’t tax your retirement accounts or personal income. Giddy up!
#11 Washington
The Evergreen State offers more than beautiful coastal scenery, lush green forests, and a great cup of coffee. It’s also a good place for retirees to live because there is no income tax on 401(k)’s, IRAs, or pensions—actually, there’s no income tax at all!
#12 Wyoming
With majestic mountain ranges, vast valley floors, thick Pine forests, endless flowing rivers, rugged landscapes, and wildlife, Wyoming is unique in every sense of the word. The Cowboy State is another very taxpayer-friendly state with no income tax. Thus, there are no taxes on retirement income.
20 States with No Income Tax for Veterans
The following 20 states have a state income tax, but military retirement pay and/or pension income are tax-exempt.
#1 Alabama
Exempt from taxes on military retirement pay.
#2 Arkansas
No taxes on military retirement income pay. Other retirement pensions can be exempt from taxable income up to $6,000.
#3 Connecticut
Pension from the military is entirely exempt from taxes.
#4 Hawaii
Military retirement pay in the state of Hawaii is fully tax-exempt.
#5 Illinois
Military pensions are fully exempt from taxes in the state of Illinois.
#6 Iowa
In 2014, Iowa excluded military retirement benefits from Iowa’s individual taxable income. This exemption is in addition to a general pension exclusion up to $6,000 single/$12,000 jointly, available for taxpayers over the age of 55.
#7 Kansas
Retired military pensions are fully exempt from state taxes in Kansas.
#8 Louisiana
Benefits from military pensions may be excluded from taxable income.
#9 Maine
Military pension benefits are exempt from Maine’s income tax.
#10 Massachusetts
Military pensions are exempt from Massachusetts income tax.
#11 Michigan
Military pensions are exempt from income tax in the state of Michigan.
#12 Minnesota
Minnesota does not tax military pensions for servicemen/servicewomen.
#13 Mississippi
Income from military pensions is tax-free in Mississippi.
#14 Missouri
Income from military retirement accounts is not taxed in the state of Missouri.
#15 New Jersey
Zero taxes on military retirement pay in New Jersey.
#16 New York
There are no taxes on retirement income for the military in New York.
#17 Ohio
The state of Ohio does not tax pensions from the military.
#18 Pennsylvania
Pennsylvania does not tax income from a military pension.
#19 West Virginia
As of 2018, income from military retirement accounts is tax-exempt in West Virginia.
#20 Wisconsin
In Wisconsin, military pensions are completely exempt from income tax.
14 States with “Special Provisions” for Military Retirement Pay
The following 14 states have “special provisions” or other considerations for retirement pay for military members. Keep in mind that tax laws vary between states and are always subject to change.
#1 Arizona
Retirement pay from the military can be excluded from state taxes up to $2,500.
#2 Colorado
Depending on age, military retirement pay may be exempt from state taxes up to $24,000.
#3 Delaware
Taxpayers under the age of 60 may exclude up to $2,000 of military retirement income. Retirees over the age of 60 may exclude up to $12,500 in military retirement pay.
#4 District of Columbia
For retirees 62 and older, service members may exclude up to $3,000 in military pension income.
#5 Georgia
Georgia has a provision for any type of retirement account, including military pay. Individuals over 62 or permanently and totally disabled regardless of age may qualify for a retirement income adjustment. Ages 62-64 are tax-exempt up to $35,000 and up to $65,000 over 65.
#6 Idaho
Retired military members 65 and older or disabled and 62 or older may exclude state taxes on their retirement benefits. The total maximum deductions may vary every year.
#7 Indiana
Retired military personnel and surviving spouses are allowed to deduct $6,250 plus 25% of benefits exceeding $6,250 in 2019. In 2020, this percentage increased to 50%, 75% in 2021, and 100% for taxable years after 2021, respectively. Indiana passed this law in August 2019.
#8 Kentucky
For service members in Kentucky who retired before 1997, all military retirement pay is fully exempt from state taxes. Individuals who retired after 1997 are subject to state taxes on military retirement income when it exceeds $41,110.
#9 Maryland
Retired military in Maryland does not pay state income tax up to the first $5,000 of retirement income. Additional income tax breaks are available to military retirees 65+ who are totally disabled or whose spouse is totally disabled. These additional tax breaks vary each year.
#10 Nebraska
In Nebraska, retirees must choose, within two years of retirement, either a 40% seven-year exemption option or a 15% lifetime exemption starting at age 67.
#11 North Carolina
Retired service members’ military income is tax-exempt if a veteran meets certain criteria. If retired veterans don’t meet the requirements, tax exemptions may apply up to $4,000 for single filers and $8,000 for joint filers.
#12 Oklahoma
Military retirement income may be exempt from Oklahoma state taxes up to 75% or $10,000, whichever is greater, but may not exceed federal gross adjusted income.
#13 Oregon
Retired military may qualify for a “federal pension subtraction.” Oregon residents considered “special case” will have military retirement pay taxed as regular income.
#14 South Carolina
Retired military personnel with a minimum of 20 years of active duty may deduct up to $3,000 in retirement pay until they reach the age of 65. After that, South Carolina veterans may deduct up to $10,000.
2 States with No Income Tax & No Sales Tax
The following two states don’t require citizens to pay income or sales tax.
#1 Alaska
Alaska is just one of two states in the U.S. with no income tax and no sales tax. While there is no statewide sales tax, some locally imposed sales taxes exist. The Last Frontier state makes up for lost revenue through its natural resources with high coal mining and oil drilling taxes.
#2 New Hampshire
The Granite State also offers no sales tax and does not tax earned income. However, New Hampshire residents must file taxes on any interest and dividend income that exceeds $2,400 or $4,800 if married and filing jointly. That is, until 2025, when New Hampshire will become completely income-tax-free.
Final Thoughts
Living in states with no income tax may relieve some financial burden on taxpayers. However, a state’s overall tax burden is a more accurate measure than just income tax rates, as it measures the percent of income paid in state and local taxes.
Not having to pay taxes on personal income can be a huge advantage for real estate investors. However, other factors, such as the rate of property taxes, job opportunities, population growth, and housing market trends, must also be considered.
To learn more about tax strategies and investing in the country’s best real estate markets, join RealWealth today (membership is 100% free!).
