The states with the lowest overall tax burden

No single state has the lowest taxes across all categories—it depends on what you earn and what you own. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax, which is the biggest tax advantage most people notice. But these states often make up the difference with higher sales taxes, property taxes, or both. A state with no income tax might still cost you more than a state with income tax if you own property or buy a lot of goods.

The actual lowest-tax state for you depends on your situation. A retiree living on investment income might save the most in Florida or Nevada. A high earner might prefer Alaska or Washington. A homeowner might find a state with lower property taxes more valuable than no income tax. The only way to know is to add up what you would pay in each category where you live now, then compare it to the states you are considering.

Key Takeaways

  • Eight states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
  • States without income tax often charge higher sales tax or property tax to fund schools and services, so the total tax burden may not be lower.
  • Your lowest-tax state depends on your income type, home value, and spending habits—not just whether the state has income tax.
  • Retirees, business owners, and wage earners often benefit from different states because each state taxes different income sources at different rates.
  • Moving to a lower-tax state for tax reasons alone usually makes sense only if you are already planning to relocate for other reasons.

States with no income tax and what they tax instead

Alaska has no income tax and no sales tax, making it the lowest-tax option for most people. However, property taxes vary by municipality and can be moderate to high depending on where you settle. Alaska also taxes oil and gas production, which keeps the state budget stable without taxing residents directly.

Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all have no income tax but rely on sales tax, property tax, or both. Florida and Texas have moderate property taxes but higher sales taxes. Washington and Nevada have no income tax and moderate sales taxes but varying property taxes by county. Tennessee and South Dakota have higher sales taxes to compensate. Wyoming has the lowest property taxes of the group but moderate sales taxes.

The trade-off matters most if you earn a high income, own expensive property, or spend heavily on taxed goods. A person earning $150,000 a year saves far more from no income tax than someone earning $40,000. A homeowner in a high-property-tax county loses much of that savings. Someone who buys little and saves most of their income avoids sales tax almost entirely.

States with income tax but lower overall burden

Some states with income tax still rank low in total tax burden because they keep income tax rates low and property taxes reasonable. Mississippi, Louisiana, and Arkansas have income tax rates below 5.5 percent and low property taxes, making the combined burden competitive with no-income-tax states for many residents.

Colorado, Indiana, and Kentucky have flat income tax rates between 4.5 and 5.75 percent and moderate property taxes. These states work well for people who earn moderate income and own a home of average value, because the income tax is predictable and the property tax does not spike.

The advantage of these states is stability and simplicity. You know exactly what percentage of your income goes to the state, and property taxes do not vary wildly by county. The disadvantage is that high earners pay more than they would in a no-income-tax state, and retirees living on investment income may pay tax on that income depending on the state.

How income type changes which state saves you the most

Wage income and investment income are taxed differently by state, which means the best state for you depends on how you earn money. If you work for an employer and earn a salary, a state with no income tax saves you the most. If you are retired and live on Social Security, most states do not tax it, so income tax rate matters less. If you live on dividends, capital gains, or retirement account withdrawals, the state's treatment of that income is what counts.

Florida does not tax Social Security, pensions, or retirement account withdrawals, making it popular with retirees. Texas has the same advantage plus no income tax on any source. South Dakota and Wyoming do not tax retirement income, which benefits people over 59½ who withdraw from IRAs or 401(k)s. Tennessee taxes only dividend and interest income, not wages or retirement withdrawals, which works for some retirees but not others.

A person earning $80,000 in wages might save $4,000 to $6,000 per year by moving to Texas instead of California. A retiree earning $40,000 from a pension and Social Security might save nothing by moving to Texas but could save $2,000 to $3,000 by moving to Florida, because Florida does not tax pensions. The math changes completely based on where your money comes from.

Property tax and sales tax: the hidden costs

States without income tax fund schools and services through property tax and sales tax. New Jersey, Illinois, and Connecticut have the highest property tax rates in the country, often 1.5 to 2 percent of home value per year. Hawaii, Alabama, and Louisiana have the lowest, often below 0.5 percent. A $300,000 home in New Jersey costs $4,500 to $6,000 per year in property tax alone. The same home in Hawaii costs $1,200 to $1,500.

Sales tax ranges from zero in Alaska, Delaware, Montana, New Hampshire, and Oregon to 7.25 percent or higher in California, Tennessee, and Louisiana. Some states add local sales tax on top, pushing the total to 9 or 10 percent. If you spend $50,000 per year on taxed goods, a 2 percent difference in sales tax costs you $1,000 per year.

The combination matters more than any single tax. A state with no income tax but 9 percent sales tax and 1.5 percent property tax can cost more than a state with 4 percent income tax and 0.8 percent property tax, depending on how much you earn, spend, and own.

Comparing your current state to potential states

To find your lowest-tax state, list your income sources, home value, and annual spending on taxed goods. Then calculate what you would pay in each category in your current state and in the states you are considering. Use your state's tax department website to find current income tax rates, and use county assessor websites to find property tax rates for the specific county where you might move.

For income tax, multiply your taxable income by the state rate. For property tax, multiply your home value by the county rate (usually shown as a percentage or per $1,000 of assessed value). For sales tax, multiply your annual spending on taxed goods by the combined state and local rate. Add the three together to get your total state and local tax bill.

Do this calculation for at least three states you are seriously considering. The difference is often smaller than people expect, and moving for tax reasons alone usually makes sense only if you are already relocating for work, family, or retirement and want to choose the lowest-tax destination.

Special tax situations: business owners and retirees

Business owners benefit most from states with no income tax or low income tax on business profits. Texas, Nevada, and Florida are popular for this reason. However, some states tax business income differently than wage income, so check your state's rules for S-corps, LLCs, and sole proprietorships before deciding.

Retirees should focus on how each state taxes the specific income sources they will live on: Social Security, pensions, 401(k) withdrawals, IRAs, or investment income. Florida, Texas, South Dakota, and Wyoming offer the most generous treatment of retirement income. Pennsylvania does not tax pensions or retirement account withdrawals, which benefits some retirees even though it has income tax on wages. Check whether your state taxes each source before moving.

Frequently Asked Questions

Is Alaska really the lowest-tax state?

Alaska has no income tax and no sales tax, which is the lowest combination. However, property taxes vary by municipality and can be high in some areas. For most people, Alaska is the lowest-tax option, but check the property tax rate in the specific city or borough where you would live.

Do I have to move to save on taxes?

Moving for tax savings alone usually costs more than you save in the first few years due to moving expenses, real estate transaction costs, and the effort of relocating. Tax savings make sense as one factor in a move you are already making for other reasons, such as retirement, a job change, or family.

What if I work remotely for a company in a high-tax state?

Most states tax income based on where you live, not where your employer is located. If you move to Texas and work remotely for a California company, you pay Texas tax, not California tax. However, some states have special rules for remote workers, so check your new state's tax department website before moving.

Are there other taxes besides income, property, and sales tax?

Yes. Some states tax inheritance, gasoline, cigarettes, alcohol, or vehicle registration at different rates. These taxes are usually smaller than income, property, and sales tax, but they add up if you own a car, smoke, or drink. Check your state's tax department for a complete list.

Should I move to a low-tax state if I am retired?

It depends on your income sources. If you live on Social Security and a pension, Florida or Texas might save you thousands per year. If you live on wages or investment income, the savings might be smaller. Calculate your actual tax bill in your current state and in the states you are considering before deciding.