Did you know that in the US, your income tax rate varies based on which state you live in? Some states have zero income tax, potentially offering a financial benefit to living and working there, but it’s important to research the state first to understand how other taxes (like sales or property taxes) play into the overall cost of living.
Income Tax-Free States
The following states don’t have an income tax (with the exception of New Hampshire and Tennessee, which currently don’t have income taxes for earned income, but do tax dividend and interest income. This is in the process of being phased out, making both states income tax free by 2025). For the sake of comparison, property taxes compared below are the average effective property tax rate, which is calculated by taking the total amount of taxes paid on owner-occupied homes in a given area as a share of the total value of those homes. These averages are useful for comparing taxes between states, but it’s worth noting that property tax rates can still vary considerably within any given state. Please note that all statistics given in the following are accurate as of date of publishing; tax rates are subject to change over time.
While Alaska has no income tax, it does have a max local sales tax rate of 7.5% and an average combined state and local sales tax rate of 1.76%. Property taxes in Alaska are slightly higher than the national average exact property tax (1.17% compared to 0.99%), but the tax rate depends on the county the property is located in. According to TaxFoundation.org’s 2023 State Business Tax Climate Index, Alaska ranks third for lowest tax burden overall, making it a popular choice for those looking to maximize their income.
The state of Florida has a general sales tax of 6% on most goods and services, with specific rates for amusement machine receipts, leasing commercial real property, and electricity. Counties in Florida also have the ability to impose an additional local sales tax on most transactions, with a maximum 2% rate. Property taxes in Florida are specific to the county the property is located in and based on the “just” or fair market value of the property. The average effective property tax rate in Florida is 0.80%, which is lower than the national average of 0.99%. Like many states with a high number of seasonal residents or tourists, Florida allows counties to impose local option transient rental taxes on rentals or leases of accommodations in hotels, motels, apartments, etc., for a term of six months or less.
Nevada, known for its stunning desert landscapes and the famous city of Las Vegas, has a 6.85% state sales tax rate, a max local sales tax rate of 1.53%, and an average combined state and local sales tax rate of 8.23%. The state’s average effective property tax rate is just 0.48%. Nevada is able to support its infrastructure while keeping individual taxes low, thanks to its revenue from gaming taxes.
An outlier on this list, New Hampshire does impose a flat 4% percent individual income tax rate but only on interest and dividends income. New Hampshire does not have a state sales tax and does not levy local sales taxes, with the major exception of the Rooms and Meals tax, an 8.5% tax on room rentals and prepared meals. The absence of an income tax or sales tax on most goods and services has made New Hampshire an attractive destination for those looking to maximize their earnings, but potential homeowners should keep in mind that New Hampshire has the fourth-highest property tax rates of any U.S. state, with an average effective property tax rate of 1.77%. Renters, too, may feel the impact of the high property tax rate on the average cost of rental homes and apartments.
With a 4.50% state sales tax and a max local sales tax of 4.50%, South Dakota’s combined average state and local sales tax rate is 6.40%. Property taxes in South Dakota surpass the national average of 0.99% with an average effective property tax rate of 1.08%. That said, like many states with above-average property taxes, an owner-occupied residence (a property that the owner lives in) is eligible for a lower tax rate than other types of property.
Like New Hampshire, Tennessee currently has a flat tax rate (4%) that applies to income earned from interest and dividends, but this tax is in the process of being phased out. Tennessee has an average combined state and local sales tax rate of 9.55%, including a 7.00% state sales tax rate and a max local sales tax rate of 2.75%. Property taxes are relatively low in Tennessee, with an average effective property tax rate of 0.56%, almost half the national average.
Texas has a 6.25% state sales tax rate, with a max local sales tax rate of 2% and an average combined state and local sales tax rate of 8.20%. While Texas has no state property tax, it does have local taxing units which use that revenue to provide local services, including schools, streets and roads, police, and fire protection. The average effective property tax rate in the Lone Star State is 1.60%, well above the national average of 0.99%.
Similar to New Hampshire and Tennessee, while Washington has no state income tax it levies a 7% tax on capital gains income. Washington has a 6.5% state sales rate, a max local sales tax rate of 4.1%, and an average combined state and local sales tax rate of 8.86%. Property taxes are slightly lower than the national average, with an average effective tax rate of 0.84%. One of the perks to owning property in Washington state is that property taxes are limited by a number of laws that put caps on the amount homeowners can be taxed and the amount those taxes can increase in a given year.
Wyoming has some of the lowest taxes among states with no income tax, thanks to the funding provided by oil and mineral rights taxes. Wyoming has a 4% percent state sales tax and a max local sales tax rate of 2%, for an average combined state and local sales tax rate of 5.36%. Wyoming’s average effective property tax rate is 0.55%, the 10th-lowest in the country. Use of property directly affects tax rate, with property used for mineral production (mines, quarries, etc.) assessed at 100% of its fair market value, while residential property is assessed at just 9.5% of its fair market value.
As you can see, income tax isn’t the only factor you should consider when comparing destinations in the US. Depending on a state’s natural resources and other sources of revenue, local taxes on sales and property might be higher than average to account for the lack of revenue from an income tax. Even within one state, local taxes can vary greatly by county, so it’s worth researching in advance before choosing to settle somewhere long term. No matter what you choose, Global Nurse Partners can help you find the right role in the right location to further your nursing career in the US.
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