Updated: Aug 11, 2020
With the cost of living on the rise, many Americans are relocating to more affordable places and are looking to seek out ways to save money on taxes. Currently, in the United States, there are seven states that have no state income tax. Those states include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. By the year 2022, Tennessee will be added to that list as it has been decreasing its tax rate by one percent each year until it is eliminated.
Keep in mind, that even if you live in one of these tax-free states, you may not be entirely out of the woods of paying income taxes. If you live in a tax-free state and earn income in a non-tax-free state, you are responsible for filing a non-resident tax return for that state. Also, if you live in a taxable income state but earn money in a tax-free state you are responsible for reporting that income on your home states tax return.
Additionally, some of these states may not collect income taxes, but make up for it in other ways. Such as Washington, which has a higher average sales tax rate of 9.17% and high gasoline taxes; Texas, which has a high property tax rate averaging 1.81%; and Tennessee, which has the highest sales tax rate in the country with an average of 9.47%.