Depending on your income in 2021, you may be feeling the pain of paying your taxes. Perhaps, you hurt when you look at your paychecks and see all the state and federal taxes being withheld. Some of you may feel a bit more pain based on the state where you live, how you earn your income, and whether you own a home. The overall tax burden can vary widely from state to state.
While seven states boast of not having an income tax, this doesn’t mean you get to live tax-free. Those states have to fund their budgets somehow. If you were wondering, the seven states without an income tax are Nevada, Washington, South Dakota, Texas, Florida, Wyoming, and Alaska. Keep reading to find the five states with the lowest overall tax burden for their residents.
Income taxes are just one part of the overall tax burden of living in a state. Your tax burden at the state level can vary widely depending on your financial circumstances. Your tax burden is the proportion of your total personal income required to cover your state and local taxes. The most common types of state and local taxes are personal income taxes, sales taxes, and of course, property taxes.
State tax burdens aren’t uniform across the country. For example, while Nevada and Washington have no state income tax, they have the second and third highest sales and excise taxes and rank No. 33 and 30, respectively, for overall tax burden.
To determine the states that tax their residents the most and least aggressively, WalletHub compared the 50 states across the three types of state tax burdens — property taxes, individual income taxes, and sales/excise taxes — as a share of total personal income in the state. Below are the six states with the lowest overall tax burden.
Related: 5 States With The Highest Tax Burdens
Six States With The Lowest Overall Tax Burden
6. Florida
Florida has a well-deserved reputation as a low-tax state. However, it can only boast the sixth-lowest overall tax burden. While Florida has no income taxes, it has high property taxes, ranking 28th. Florida is great if you have a high income and are a renter.
- Total tax burden: 6.64%
- Property tax burden: 2.77% (28)
- Individual income tax burden: 0.00% (lowest)
- Total sales & excise tax burden: 3.87% (16)
New Hampshire Tax Burden. Seniors from Kenneth High School and family ride a ski lift to the summit … [+]
5. New Hampshire
New Hampshire has the third-lowest property tax burden with relatively low property and low-property values.
- Total tax burden: 6.41%
- Property tax burden: 5.11% (3)
- Individual income tax burden: 0.14% (42)
- Total sales & excise tax burden: 1.16% (49)
Vintage illustration of Greetings from Wyoming large letter vintage postcard, 1940s. (Photo by … [+]
4. Wyoming
Like Florida, Wyoming has no income taxes. Thanks to their tax rules, Wyoming was recently named one of the friendliest tax shelters in the world.
- Total tax burden: 6.32%
- Property tax burden: 3.32% (15)
- Individual income tax burden: 0.00% (lowest)
- Total sales & excise tax burden: 3.00% (35)
Delaware Tax burden. NEW CASTLE, DELAWARE – JANUARY 19: One day before being inaugurated as the 46th … [+]
3. Delaware
Delaware has a graduated state individual income tax, with rates ranging from 2.20 percent to 6.60 percent.
- Total tax burden: 6.22%
- Property tax burden: 1.77% (46)
- Individual income tax burden: 3.28% (7)
- Total sales & excise tax burden: 1.17% (48)
NASHVILLE, TENNESSEE – SEPTEMBER 2, 2019: The Regions Bank building looms behind a neon sign over … [+]
2. Tennessee
Low taxes could be why people flock to Nashville and other parts of Tennessee.
- Total tax burden: 5.75%
- Property tax burden: 1.71% (49)
- Individual income tax burden: 0.06% (43)
- Total sales & excise tax burden: 3.98% (14)
Alaska Tax burden. PALMER, ALASKA – SEPTEMBER 07: The Matanuska glacier is seen on September 07, … [+]
1. Alaska State Tax Burden
Residents of Alaska have a zero percent income tax. However, the cold likely keeps many Americans from moving to Alaska.
- Total tax burden: 5.06%
- Property tax burden: 3.54% (11)
- Individual income tax burden: 0.00% (lowest)
- Total sales & excise tax burden: 1.52% (46)
As a Los Angeles financial planner, I’d like to point out that California ranks 42 out of 50 in terms of low taxes. The state is 30th in terms of property taxes. With the tax savings benefits of Prop 13, relative to property values, the property tax burden in California is much more competitive than its ranking would imply. However, California has the country’s highest nominal tax rate of 13.3%; its residents are only hit with the ninth overall tax burden. The income-tax number is high, but the actual tax rates for more median-income households are not as high as in other states.
42. California State and Local Taxes
· Total tax burden: 9.72%
· Property tax burden: 2.76% (rank: 30)
· Individual income tax burden: 3.80% (rank: 4)
· Total sales & excise tax burden: 3.16% (rank: 32)
I often get asked about moving in retirement to lower taxes. If you are planning on moving, you should know how that move will change your taxes on retirement income. On the flip side, I wouldn’t recommend moving to save on taxes to have your best retirement. If you hate the cold, I don’t think any amount of tax savings will ease the freeze of winter in Alaska, Wyoming, or New Hampshire. That being said, I’m someone who prefers the winter weather in Palm Springs compared to Chicago.