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U.S. States With Less/No Taxes In 2024
Avoiding state income taxes may sound good, but there are frequently drawbacks, such as expensive sales taxes. You may maximize your tax preparation approach with the assistance of a financial counselor. This article highlights the U.S. states with less/no Taxes in 2024.
For every American, taxes are a part of their financial life in one way or another. However, state personal income taxes do not apply to citizens of Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming. Additionally, residents of New Hampshire and Washington will not be subject to personal income taxes; however, they will still be subject to other taxes on investments, dividends, and interest. Avoiding state income taxes may sound good, but there are frequently drawbacks, such as expensive sales taxes. You may maximize your tax preparation approach with the assistance of a financial counselor. This article highlights the U.S. states with less/no Taxes in 2024.
The non-profit Tax Foundation estimates that 18.1% is the average effective income tax rate for all American families. While that is less than the maximum marginal rate that most year-round workers pay—at least 25% for anybody whose adjusted gross income exceeds $36,901—it still doesn’t give the whole story.
U.S. States With Less/No Taxes In 2024
Here are the states in the U.S. with the lowest tax rates in 2024
1. Alaska
The Alaska state government depends on various forms of taxes, such as excise and severance taxes, to pay for its operations rather than sales and personal income taxes company oil and gas drilling operations provide the majority of company income. However, to lessen the state’s budget deficit, the governor has suggested reintroducing the personal income tax in light of the drop in oil prices.
The northernmost city in our analysis takes first place for having the lowest taxes in America. The biggest state in the union is also regarded as one of the most tax-friendly. To raise money, Alaska started taxing oil and gas production corporations heavily after eliminating its income tax in 1980. Alaska has the lowest total state and local tax burden in the US, at 4.6%.
2. New Hampshire
New Hampshire continues to tax dividends and interest on investment income at a rate of 4%, in contrast to other states on this list. In 2024, this rate will drop to 3%, and in 2025, the tax will be fully phased out. Additionally, the state collects excise taxes on products like tobacco but does not impose sales taxes. Although there is now no personal income tax in New Hampshire, there is a 4% tax on profits and interest. Before it is completely abolished in 2027, this rate will drop to 3% in 2024, 2% in 2025, and 1% in 2026.
In comparison to other states, the total state and local tax burden as of 2023 is expected to be very modest, at 9.6%, according to the Tax Foundation. New Hampshire does poorly in terms of affordability (36 out of 50) and cost of living (39 out of 50). Another notable feature of New Hampshire is its comparatively high property taxes.
3. South Dakota
The income tax was eliminated in South Dakota in 1943, and attempts to reintroduce it have been unsuccessful. The Mount Rushmore State imposes taxes on the sale of alcoholic drinks and cigarettes to pay for its expenses. It even charges license fees for coin-operated laundromats.
Among the states with the best tax policies is South Dakota, particularly for retirees. It has some of the lowest average sales tax rates in the country, and its average effective property tax rate is somewhat higher than the national average. Local governments are responsible for collecting personal and property taxes, which they then utilize to finance public education systems as well as programs and services at the municipal and county levels.
4. Tennessee
There is no income tax in Tennessee. This covers income from investments, dividends, and interest in addition to earnings received from employment. Tennessee did, however, have an income tax as recently as 2020; it was referred to as the Hall Income Tax. A measure that gradually lowered the Hall Income Tax rate on investment income was passed into law by the state governor in 2016. It was removed entirely for tax periods starting on January 1, 2021, and going forward.
The Volunteer State will continue to generate cash in the meantime by imposing high sales tax rates and sin levies. For instance, beer dealers have to pay a $1.29 state tax for each gallon of beer they sell.
5. Florida
Miami can be the ideal location for you if you enjoy being near the beach but detest paying taxes. Miami draws people with the promise of no income taxes and a sales tax rate of 7%, which is lower than in many other large cities, in addition to its year-round tropical weather.
Both pensioners and holidaymakers like visiting this southern state. The main sources of income for the state of Florida are property taxes, highway tolls, and state university tuition. Although most individuals may not find living expenses to be a deal-breaker, Floridians may still have to cope with a competitive property market and costs. Regarding affordable housing, U.S. News & World Report rates the state 40 out of 50.
6. Texas
Texas is also one of the states in the U.S. with the lowest tax rates. Personal income taxes are prohibited by the Texas Constitution. Texas depends heavily on its high sales and use taxes rather than income taxes. In certain areas, total sales taxes might reach 8.25% when combined with municipal taxes. Texas has very high rates of property taxation. In actuality, the rates of property taxes are greater in a small number of states.
7. Washington
Upon initial observation, one may assume that Washington has some of the highest taxes of any American city. Its top marginal income tax rate of 8.95% is, after all, the seventh highest in the nation. However, because that rate only applies to income received after a taxpayer’s first $40,000 in earnings, middle-class people pay a far lower rate. With its “Homestead Deduction” on real estate, which lowers the taxable value of qualified homes by $70,200, the District also benefits middle-class homeowners.
8. Nevada
Nevada had an overall state and local tax burden of 9.6%, which is rather high. Sales and excise taxes, which apply to groceries and alcohol, and taxes on businesses catering to the hospitality and tourist sectors, such as gambling and hotels, account for the majority of the tax burden. Regarding affordability, Nevada is consistently rated toward the bottom of the list. The state is ranked 34 out of 50 overall by U.S. News & World Report, with a special emphasis on the high expense of housing. On the other side, the property tax rates are among the lowest in the nation.
9. Wyoming
You might want to think about relocating to Wyoming if you want to live somewhere with low tax rates. The Cowboy State does not impose any state income taxes on individuals or corporations, nor does it impose any taxes on retirement income. Its average sales tax rate is somewhat less than 5.5%, while its average effective property tax rate is only around 0.57%.
Wyoming collects most of its revenue from property taxes and from companies that produce natural resources, such as coal, to make up for not having an income tax.
10. Colorado
Colorado Springs, which is in El Paso County, has long been known for being a great place for families as well as for its breathtaking natural surroundings. The state tax credit differs from the corresponding federal tax credit by 5% to 30%. In our hypothetical scenario, a taxpayer making $45,000 annually would receive a $150 annual credit for each kid under the age of six. Colorado Springs parents who are growing a family might benefit from the state and local tax structures, particularly the Child Tax Credit.
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