If you’re one of the millions of people who have moved or are thinking of relocating since the pandemic hit, you may be tempted to move to a state with no income tax. Sure, everyone wants a lower tax bill, but don’t assume that living in any of these states will make things easier. There’s plenty of pros and cons to consider.
Currently, the seven states with no income tax are:
- South Dakota
- Florida (Has no personal income taxes, but does impose taxes on the value of certain business assets)
Two other states, New Hampshire and Tennessee, tax only dividend and interest income. There are no state income taxes on wages or self-employment income. New Hampshire however, is set to eliminate these taxes soon. That will bring the number of states with no income tax to nine by 2024.
Florida, in recent months, has seen a boom in New Yorkers moving to the sunshine state. While not having an income tax, Florida does have a sales and property tax higher than the national average. However, the overall tax burden is just 6.82% — the fifth-lowest in the country. It also ranks 35th in affordability, but it is still not as affordable as most states due to higher-than-average cost of living and housing costs.
One advantage of living in a no-tax state is that the $10,000 cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act will likely not have as great an impact as it does on residents of high-tax states, such as California and New York.
Research Tax Burdens
Do your homework. Make sure you research the cost of living in any state you’re considering moving to. If you have children, researching where the state ranks in education and how much it spends on each pupil is vital. Also, see where healthcare costs rank in comparison to the national average.
Before Packing Your Bags
While a no income tax state sounds attractive – remember, low taxes alone don’t provide a complete picture of the cost of living in any of these states. Depending on your age, family status, and health, your needs will differ from the next person looking to relocate. Regardless, it’s important to find a balance between low taxes, affordability, and providing an overall great place to live.