States in the United States receive federal assistance for some programs, but each state is still responsible for raising its revenues to pay for education, transportation, health care, and other programs.
How is this money raised? It is typically raised through taxes. Most states tax the wages of its residents with a state income tax. However, some states do not have a state income tax, although residents do have to pay federal taxes.
While living in a state with no taxes sounds great, it’s important to note that these states still have to raise revenue. This means that taxes in other areas – such as sales tax or property tax – are much higher for residents.
In the United States, there are currently seven states that do not have a state income tax. These states are:
- South Dakota
Some states, such as Washington, have never had a personal income tax. Other states, such as Alaska, have repealed laws in recent years that require citizens to pay state income taxes.
In some states, other types of taxes are used to replace the individual income tax. In Florida, for example, residents have to pay sales taxes, higher property taxes, and corporate income taxes.
These aren’t the only states that don’t tax wages. Both Tennessee and New Hampshire do not have a personal income tax. However, these states do tax some dividends and interest. In Tennessee, the income tax rate on investment income is being reduced until the year 2022, when it will be eliminated. In the state of New Hampshire, there are not only no income taxes or sales taxes, but there are excise taxes. The state also has one of the highest property tax rates in the nations.
While it seems great to live in a state where there are no personal income taxes, remember that all states have to generate their own revenue. Even if you aren’t paying personal income taxes to the state, you may be spending just as much as other states through higher sales and property taxes, taxes on gas or groceries, or through different types of taxes.