States with no Income Tax
A great way to save money while in retirement is to move to a state with no income tax. For retirees, this means no state tax on Social Security benefits, pensions and other retirement income.
As of 2022, there are 9 states without income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. New Hampshire does however tax interest and dividends, however this is scheduled to be phased out by 2027.
What are the implications of moving to a state without an income tax?
If you lived in Massachusetts, which has a flat income tax rate of 5%, and your taxable income for the year is $120,000, you’d have a $6,000 tax bill. If you moved to a state without an income tax, you’d be saving yourself $6,000.
Does this mean it’s beneficial to move to a state without an income tax?
Not necessarily, as other states will fill the revenue void in other ways. States without income tax find other ways to fund roads, schools and other infrastructure.
A typical source is high sales tax. For example, Tennessee imposes a 9.55% sales tax – the highest combined sales tax of any US state. Cities and counties within these states also tack on their own local sales tax to that rate. In Nevada, the average local tax adds an extra 1.38% to the state sales tax. Every time a Nevada resident buys furniture, home appliances, or motor vehicles, state and local taxes increase the final purchase price by roughly 8%.
Other states use property taxes as a revenue stream. Texas homeowners pay an average of 1.60% of their home value in property taxes. For a home valued at $300,000, that’s $4,800 in property taxes per year.
Cost of Living:
Other factors including healthcare, cost of living, and job opportunities—are also important in determining how expensive a state is. A state’s overall tax burden, which measures the percent of income paid in state and local taxes, could be a more accurate measure of its affordability than its income tax rate alone. For Example, Alaska had the lowest tax burden in the US in 2021, however it was also one of the least affordable states to live in.
Aside from the costs
Taxes aren’t the only factor that plays a part in your decision to move. If you are moving to be closer to family, for a job, or for a better quality of life, then the move could be a great decision for you.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
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