Out of 50 states, 41 states impose a state income tax. Same as your federal income tax, you pay them by withholding tax and receive a tax refund if the total taxes withheld exceeds the state tax bill. Although the tax rate on federal income tax is determined by your income, it isn’t the only criteria for the state taxes.
Your location also plays a major role in how much tax you’re going to pay. Each state has its own different tax rates with California being the highest at 13.3% and Wisconsin at 7.65%.
Luckily, if you’re living in either one of the states that don’t impose a state income tax, you don’t need to worry about any of these. Although some states are in the works of getting rid of the state income taxes, as of 2020, there are only nine states without an income tax.
List of States With No State Income Tax
- New Hampshire
- South Dakota
The above list also in the order of tax burden of income from lowest to highest.
Where do these states make revenue from you may ask, well, the answer to that is simple. All of the states with no income tax rely on sales and property tax. Although most would think that affordability would be an issue, these states seem to manage it just fine.
That’s of course with the exception of Alaska but the sales tax isn’t the reason why Alaska is quite expensive. The state’s remote location is what makes it an expensive place to buy. In fact, the tax burden of most of these states is actually lower than most other states. Here is the percentage of the tax burden of these states as of 2020.
Overall, just because someone lives in a state with no income tax doesn’t mean they will pay less tax. Therefore, note that if you’re thinking about moving to a state with no income tax. You should consider the affordability rather than the tax rate of the state if you want to save more money.