Nine states don't charge income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
While not paying a state tax on your income is a plus, it’s not all roses. It often means you have higher property taxes, lower infrastructure spending, and a higher cost of living due to people flocking there to escape high-income taxes elsewhere.
If you're looking to stay ahead financially, here are 12 downsides that should be on your radar if you’re considering moving to a state with no income tax.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
New residents are flocking to these states
![couple going over their bills](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/couple_going_over_their_bills.jpg)
IRS data show that states without an income tax have grown at twice the rate of other states.
That’s great if you’re already there, own a home, and have a job. But it’s making these states more competitive in these areas, which may make it difficult for newcomers.
Their education spending may be lower
![accompanies the child to school](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/accompanies_the_child_to_school.jpg)
If you plan to send children to public school, then education spending is probably high on your checklist for desirable places to live.
With less tax revenue, these states may have less to spend on education. This is the situation in South Dakota and Wyoming, both no-income-tax states, which are at the very bottom of education spending, according to the U.S. Census.
Real estate prices rise
![house hunting](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/house_hunting.jpg)
With more people moving to an area, more people will need housing. Then, it becomes a simple supply and demand calculation: More people want homes, and builders can’t build new houses fast enough.
Consequently, real estate prices skyrocket, becoming unsustainable for the average person. This has happened in no-income-tax states like Tennessee and Texas.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
Job growth may be hampered
![reading on mobile](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/reading_on_mobile.jpg)
When you have a massive number of people moving to a state, the economy will grow, but it may not grow fast enough to keep up with the new population.
Employment growth has lagged behind population growth in no-income-tax states. Consequently, jobs for those between the ages of 24 and 55 have grown more slowly in these states, making it harder to move beyond living paycheck to paycheck.
Sales tax could be higher
![family dealing financial issues](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/family_dealing_financial_issues.jpg)
States have to make up the lost revenue from no income tax somewhere, and, in some states, that means a higher sales tax.
Take Washington State, for example. Their combined state sales tax (6.5%) and city/municipal sales tax rates are as high as 9.29% in some areas of the state. That’s higher than many states that do have an income tax.
You’ll pay more at the pump
![young afro woman](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/young_afro_woman.jpg)
Another place states without an income tax will make up the difference is at the pump. You’ll see a high gasoline tax in some of these states, including Washington state, which is 49.4 cents per gallon.
That’s the third highest in the country and affects everyone's ability to save money on their car, no matter their income. It’s a lot of money if you do a lot of driving.
Property taxes are higher
![unhappy young couple](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/unhappy_young_couple.jpg)
Property taxes are a popular place for no-income-tax states to make up lost revenue.
Texas and New Hampshire have two of the highest property tax bills in the entire country. New Hampshire clocks in at 1.77%, while Texas is 1.6%. For context, the lowest is Hawaii at 0.27%.
State universities may be more expensive
![students at the lecture hall](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/students_at_the_lecture_hall.jpg)
Similar to K-12 education spending, universities may see less state funding if there’s less tax revenue.
That’s the case in New Hampshire, which doesn’t have a state income tax, and its in-state tuition for a four-year state university is the second highest in the country.
You might not be able to claim the state and local tax deduction
![calculate financial budget](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/calculate_financial_budget.jpg)
The state and local taxes (SALT) deduction means that most taxpayers who itemize their taxes get a maximum deduction of $10,000 on their federal tax return. However, without income tax, you probably won’t be able to hit that $10,000 number.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
There could be a bigger burden on lower-income residents
![desperate wife and husband](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/desperate_wife_and_husband.jpg)
In states with an income tax, more of the tax burden falls on those making more money.
However, in states that rely on sales or gasoline taxes to pick up the slack, the burden will fall on all those who need to buy necessities, drive, or buy food.
Lower infrastructure spending
![pothole on a bicycle lane](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/pothole_on_a_bicycle_lane.jpg)
With less money coming in via income tax, a state also has less money to spend on big and small infrastructure projects.
That means there’s less money to pour into roads, water supply, electrical grids, and even telecommunications. This could become frustrating as you spend more money on maintaining or paying for things you thought were part of the government budget.
Higher cost of living
![stressed woman worried](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/stressed_woman_worried.jpg)
As a state becomes more popular, thanks to its lack of a state income tax, more people move in. That means prices go up.
Everything from groceries to daily necessities will respond to supply and demand, potentially negating an individual’s savings from no income tax.
Bottom line
![couple reviews asset management](https://cdn.financebuzz.com/filters:quality(75)/images/2023/12/11/couple_reviews_asset_management.jpg)
No income tax sounds like a best-case scenario, but it doesn’t mean that you’ll avoid taxes completely. Often states will find a way to make up that lost tax revenue elsewhere.
Before you pack your bags to move to Texas or Florida, consider your individual tax situation. If you’re a high earner who doesn’t own property, moving to a state without an income tax could definitely save you money.
But if you’re a retiree who plans to buy a new place in a state without an income tax, you may need to supplement your Social Security first to cut down on your sales tax.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 20.24%, 25.24%, or 29.99% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.