Author: Christy Bieber | December 10, 2018
Most states tax your wages -- these nine don't
Paying taxes is a part of life. In fact, not only do you have to pay taxes on your income to the federal government, but you're also taxed on that income in most states as well.
States have the power to set their own tax policy, but the majority charge at least some tax on money you earn. Seven states, however, don't charge individual income tax. And another two charge taxes on certain types of investment income -- but don't tax wages you earn.
Where are these states that won't tax wages? Here's a list of nine places you can live where you can earn wages from work without giving your state government a cut.
Alaska is one of the seven states that has no individual income tax at all. Not only that, but Alaska's tax policy stands apart because Alaska doesn't collect sales tax or individual income tax on either earned or unearned income.
How can Alaska get away without charging any taxes? It's simple. The state government runs on petroleum reserves. Alaska's Department of Revenue details projected revenue from the state's oil and gas industry, which accounts for more than 90% of the state's unrestricted revenue.
The state's oil and gas industry benefits residents in another way besides just helping them save on income taxes. Every Alaskan, including children, gets an annual payment from Alaska's Permanent Fund Corporation.
This doesn't mean no Alaska resident ever has to worry about taxes though. Some cities and individual jurisdictions within the state collect sales tax, even though the state doesn't.
Florida's another state on the list of seven without any income tax on income that individuals earn. It's also known as a tax haven, attractive to retires and businesses alike.
That Florida repeatedly tops lists of the most tax-friendly states in the U.S. should come as no surprise. Not only is there no income tax, but the state's sales tax isn't too high at just 6%. And, property taxes are below the midpoint for the U.S., so homeowners won't have to worry their house will cost them big bucks in taxes either.
If you like warm weather year round, enjoy beaches or theme parks, and don't mind humidity, Florida may be the right place for you to move to earn as much income as you want without paying tax on it.
Add Nevada to your list of the seven states where individuals don't pay income tax.
Nevada doesn't tax income, in part, because the state is able to collect so much revenue from it's world-renowned casinos. But, Nevada does charge a hefty average local sales tax topping 8%, which is higher than many of the other states on this list. The good news is, food and prescription drugs are exempt.
Nevada residents also face a government-services tax on vehicles, which could cost a few hundred dollars per year depending upon vehicle age and size. Still, not having to pay state income tax is a big relief to many workers who'd like to keep more of their hard-earned wages instead of giving money to the state government.
New Hampshire's state motto is Live Free or Die. It's a fitting motto, as New Hampshire residents don't have to pay any income taxes to their state for wages earned. However, if you live in New Hampshire, you will likely be taxed 5% on income from dividends and interest. The good news is though, many retirees receive an exemption from at least some taxes on investment income, as do disabled and blind residents.
While some residents pay taxes on their investment earnings, on the plus side, New Hampshire charges no state sales tax. Not having to pay taxes on wages you earn or purchases you make can make living in New Hampshire much more affordable.
South Dakota is yet another state where individuals can earn income without owing any taxes to the state.
While you'll have to bundle up big time in the winter, living in South Dakota not only helps you save on income tax but you also benefit from a low gas tax and reasonable average local sales taxes.
The one bummer for residents looking for a low-tax lifestyle is that property taxes in South Dakota exceed national averages for median price homes. Further, residents are also taxed on many services that aren't taxable in other states, and have to pay sales tax on food and non-prescription drugs. While paying these taxes is a pain, the savings that comes from having no state income tax still makes South Dakota one of the most tax-friendly states in the country.
Tennessee is not among the seven states that charge no individual income tax on any money you earn. That's because the state taxes income from investments including stocks and bonds. You'll pay taxes on investment income at a flat rate of 6%, although the single filers can exempt up to $1,250 in income, joint filers can exempt up to $2,500, and both lower-income residents and seniors also benefit from exemptions.
Investment taxes aren't fun to pay -- but the good news for workers is that Tennessee does not impose taxes on wages. So, if you're earning money working, it's safe in the Volunteer State. You will pay state sales tax though: food items are taxed at 5%, other items at 7%, and local sales taxes may also be collected in parts of the state.
Texas is well-known for its conservative politics, and the Lone Star State shows its anti-tax bona fides as one of the seven states that doesn't collect tax on individual income. Texas doesn't impose a state income tax now, and likely won't for the foreseeable future as the state constitution prohibits the passage of a personal income tax.
Texas does collect a state sales tax, and localities through Texas also add their own taxes on top of that. When combined, state and local sales taxes could top 8%, which is above the sales tax rate charged by several other states on this list.
While Washington D.C. residents pay a lot of taxes, residents of Washington State are among the individuals residing in the small minority of seven states where no individual income taxes are paid to the state government. Businesses also don't owe a corporate income tax, although companies could have other taxes to pay including a business and occupation tax.
Washington has a fairly reasonable sales tax at 6.5%, which residents don't have to pay on certain food products. Property tax is an important source of state revenue though, accounting for around 30% of the state's income from taxes. But, while you may have to pay taxes on your home and on the products you buy, the income you earn is your own.
Finally, Wyoming is last on the list of seven states that don't charge taxes on individual income. Not only can you earn income without paying any state income taxes, but Wyoming is tax friendly in other ways too. Property taxes are among the lowest in the country for median price homes, and the average local sales tax in the state is under 6%, which is a very competitive rate.
If you like to drive, or drink beer, you're also in luck in Wyoming, as the state's gas tax is well below the national average and Wyoming has the lowest beer tax in the nation. Just, don't do your drinking and driving at the same time!
Living in a state that doesn't tax income means keeping more money in your pocket
If you live in one of these states, you'll still owe federal income tax -- and you'll still have to pay some taxes to your state. But, not owing taxes on income can be a big benefit. If your state is charging high taxes and you're looking for someplace that will let you keep more of your money, the states on this list are a good place to start.
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