HomePersonal FinancePros and Cons of Living in Tax-Free States

Pros and Cons of Living in Tax-Free States

The federal income tax is due by every U.S. citizen, and some state income taxes are required as well. Just nine states have no additional income tax as of 2022: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

At first glance, living in a state with an income tax might seem like no real advantage since it simply adds more financial stress to your budget. However, according to Go Banking Rates, living in a state with no income tax has its pros and cons.

Benefit: You’ll Only Need To Pay Federal Income Tax

Tax rates for 2022 are 37% at the top. For those in that bracket, the government already receives a significant portion of their income. In a high-tax state like California, your income tax bill can reach over 50% when you add state income tax on top of that. High-earners are driven away from low-tax states like Texas by rates like that.

Con: Other taxes may be higher

States without income taxes do not have excessive wealth or benevolence. Rather, they simply raise revenues in a different way. In the absence of income tax dollars, these states must obtain their revenue through other means.

Taxes on sales, property, and gasoline are typically higher as a result. Property taxes in New Hampshire and Texas, for instance, are among the highest in the country, at 1.89% and 1.6%, respectively. Washington charges 49.4 cents per gallon for gasoline, the third-highest in the country.

Read More: After Filing Taxes, Millions to Get a Refund Of $125

State income taxes might not be a concern for you, but your overall tax bill could be higher, depending on your lifestyle. You will likely pay a lower tax bill if you do not own a home and use public transportation. You may owe a lot of tax if you own expensive real estate and drive a gas-guzzling car to work every day.

Con: Lower education and infrastructure spending

Some states experience lower revenue when there is no state income tax. Therefore, basic state services might be cut. In a study conducted by the U.S. Bureau of the Census, states without income taxes such as Wyoming and South Dakota spent the least amount on education.

State governments without income taxes may reduce spending on infrastructure and other areas. It’s up to you to determine whether or not that tradeoff is worthwhile as a resident.

Are States With No Income Tax Better To Live In?

It depends in part on your personal financial situation whether or not you’re better off living in a state without income tax. However, there are other factors to consider. It is also important to consider your lifestyle and your quality of life.

When understanding your tax situation strictly from a financial standpoint, it is important to remember that your income plays a significant role. When you earn $1 million per year as a single taxpayer in California, the tax rate reaches a whopping 13.3%. For people earning a low-to-moderate salary, however, the tax rate is not as high. If you’re asking whether it’s preferable to live in a state without income tax, there’s no black-and-white answer, as there are many factors to consider. In all, factors which are crucial to you as a resident are whats important. So, sit down and analysis each and every on you can think of before making a choice.

NATE GARTRELL
NATE GARTRELLhttps://theeastcountygazette.com/
NATE GARTRELL is an author at TheEastCountyGazette.com, a publication in the East County region of San Diego County. He has been writing for the Gazette since 2012 and writes on many different topics including politics, business, health care and more.
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