The offers mentioned below reflect the 2022 tax season.
Nine U.S. states do not impose income tax on personal income. Living in a state with no income tax means that less money comes out of your paycheck each month, and come tax season you only have to submit a federal return.
As for the rest of the country, thirty-two states (plus D.C.) charge a progressive income tax where higher earners pay a greater percentage of their income than lower earners do, and another nine states charge a flat income tax where everyone is taxed at the same rate regardless of their income level.
Below, Select breaks down what taxpayers should be mindful of before relocating to one of these tax-friendly locations. And as tax season is upon us, we also share our recommendations on the best online tax software for filing your state (if applicable) and federal returns.
States with no state income tax
In the nine states with no income tax (listed below), all residents avoid paying tax on their earnings. We include New Hampshire in this list as it has no tax on earned wages, but note that it does charge a flat income tax on investment earnings.
Currently, the states with no individual income tax include:
- Alaska
- Florida
- Nevada
- New Hampshire (doesn't tax earned wages, but does tax investment earnings)
- South Dakota
- Tennessee (as of this year, will no longer tax investment earnings)
- Texas
- Washington
- Wyoming
An analysis of 2020 moving data by United Van Lines found that the Covid-19 pandemic accelerated decisions to move from high-tax states like New Jersey, New York and California to no-income-tax states like South Dakota, Tennessee and Florida (which ranked in the top 10 states with the most people moving in).
What to consider before moving to a no-income tax state
While moving to a state with no income tax may sound appealing, it comes with trade offs. States with no income tax often make up for the loss of revenue to the state by charging residents a higher sales, property or excise tax (taxes on goods like fuel, tobacco and alcohol).
For instance, Tennessee has the highest combined sales tax rate in the nation at 9.53%, according to the Tax Foundation, a D.C.-based think tank. Washington state has one of the highest tax rates on gasoline in the nation, at 49.4 cents per gallon. Of all states, New Hampshire and Alaska rely the most on property taxes, with tax collections accounting for 67.6% and 51.8%, respectively, of their revenue.
Taxes are also a big source of income that the state uses to finance public services such as infrastructure, healthcare and education. Lower taxpayer dollars likely translates into lower funding for these initiatives.
South Dakota, for example, spends the lowest on education of all states in the Midwest, at $10,073 per pupil per year. Nationwide, the average school spending per pupil is $12,612, and Florida, Nevada, Tennessee, Texas all spend less than the average.
To weigh another state's affordability, consider these above factors as well as the overall cost of living and job opportunities in your field. Leaving a big city, for example, you may have to accept certain trade-offs, such as a lower paying job for more affordable real estate.
And even if you live in a no-income-tax state, you'll likely still owe federal income taxes if your total income is more than the standard deduction. This is based on your age and filing status, but you can use a federal income tax calculator like this one from SmartAsset to determine just how much you can expect to pay.
Tax deadlines, and what to know about online tax software
Tax season is well underway as the IRS started accepting and processing tax returns on Jan. 24 for the 2022 tax season.
Taxes are traditionally due on April 15, but because April 15 falls on a holiday for Washington D.C., tax day this year is April 18, 2022. While most state deadlines are the same day, a few states have bumped their deadline back a few extra weeks. You can check your state's filing deadline here.
The federal tax deadline is not far away meaning it's time to start collecting your 2021 tax documents. And rather than mail your taxes to the IRS, you may consider signing up for an online tax service like H&R Block or TurboTax to ensure your taxes are securely filed.
It's important to select the right tax platform based on your tax needs as each of them are designed for specific tax returns ranging from simple tax returns to complex returns.
Here are our favorite tax platforms:
- Best overall tax software:Â TurboTax
- Runner-up:Â H&R Block
- Best free tax software:Â Cash App Tax (formerly Credit Karma Tax)
- Best affordable tax software:Â TaxSlayer
- Best for accuracy guarantee:Â TaxAct
TurboTax
Cost
Costs may vary depending on the plan selected - click "Learn More" for details
Free version
TurboTax Free Edition. ~37% of taxpayers qualify. Form 1040 + limited credits only.
Mobile app
Yes
Live support
Available with some pricing and filing options
Click here for TurboTax offer details and disclosures. Terms apply.
Pros
- Step-by-step guidance with a Q&A format that is easy to follow
- TurboTax Live provides on-demand advice and a final review from a tax expert
- Live Full Service has a tax expert prepare, sign, and file your return
- Audit support, which provides free assistance if you get an IRS or other tax notice
Cons
- More costly than other software programs
- Live expert assistance plans have additional costs
Cash App Taxes (formerly Credit Karma Tax)
Cost
$0 federal and state
Free version
Yes
Mobile app
Yes
Tax expert support
No
Terms apply.
Pros
- Completely free to use
- Get access to Cash App Tax services like credit monitoring alerts and credit score updates
- Audit defense, which gives you support from a representative if the IRS audits your tax return
- Maximum refund guarantee, or Cash App will pay you the difference up to $100 ($25 minimum)
- 100% accuracy, or Cash App will reimburse you for any penalties up to $1,000
Cons
- Only available in 40 states and D.C. You can't file with Cash App Taxes (formerly Credit Karma Tax) if you lived in a state for only part of the tax year, earned income in more than one state during the tax year or earned income in a state you didn't live in
- No support from tax professionals
H&R Block
Cost
Costs may vary depending on the plan selected (Free Online, Deluxe, Premium, or Self-Employed) - click "Learn More" for details
Free version
Yes (for simple returns only)
Mobile app
Yes
Live support
Available with some pricing and filing options
Terms apply.
Pros
- Simple step-by-step guidance that's easy to follow
- Unlimited on-demand chat or video support with Online Assist plans
- Ability to speak to a tax expert who has an average of 10 years experience (for paid plans only)
- Over 11,000 physical locations so you can meet with a tax expert in-person
- Maximum refund guarantee, or H&R Block will refund the plan fees you paid
- Audit support guarantee, which provides free assistance if you get an IRS or other tax notice
- 100% accuracy, or H&R Block will reimburse you for any penalties or interest up to $10,000
Cons
- Must have a paid plan to speak with a live tax expert
- One of the more costly software programs
Bottom line
Avoiding income taxes by living in one of the listed states can be a great way to keep more of your hard-earned money. However, it's important to know moving states won't instantly make you rich and that you might pay higher taxes for other things.
But as you prepare to file your taxes this year, be sure to consider where you'd like to allocate your tax refund. Whether its filling your emergency fund or investing in a Roth IRA, your tax refund can be a great financial jump forward.
