What States Don't Have an Income Tax?
States collect tax revenue through a wide range of fees and taxes. The three major sources of tax revenues are sales tax, property taxes and income tax. Some states focus on one or two main revenue sources and some use the full range of taxing options. A state without an income tax can result in higher take home pay for workers and retirees living in the state.
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No Tax States
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The IRS.gov website lists nine states that have no state income tax. The states are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. New Hampshire and Tennessee do tax income from interest and dividends.
Effects of State Income Taxes
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The Retirement Living Information Center website provides tax information for all 50 states. A review of the states that charge an income tax show most of the remaining 41 states have income tax rates in a range of 2 to 6 percent of taxable income. A few states like California, New Jersey and Oregon have top tax brackets over 10 percent. Living in a no income tax state could increase the take home pay of an individual by several thousand dollars per year.
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Other Tax Considerations
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The no income tax states must generate state revenues from other sources. These states will be reliant on sales, property, fuel or other tax sources. Alaska and Nevada generate tax revenues for special sources: oil and gambling, respectively. New Hampshire relies heavily on property taxes and the other no income tax states have moderate to high levels of sales tax.
State Tax Burden
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According to MSN Money, the average state tax revenue is about 10 percent of the income earned in the state, with a range of 7 to 12 percent. Someone who want to lower their total tax burden should consider a no income tax state and look at her spending patterns and see where the other state taxes can be avoided. For example, in some states food, clothing and/or services are not subject to sales tax and in others sales tax is collected on every type of retail transaction. Home ownership or renting can also affect the total state tax burden.
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