While budgeting, every single parameter can make a difference. One parameter that we forget to look at is the different tax rates when we dine at restaurants or buy groceries, especially sales and excise taxes which are usually mentioned in fine print.
Property and income taxes on the other hand are an important parameter that everyone checks, especially before they move to a new place. After all, it can determine if you will make ends meet. Looking for tax rates in different states can also be a confusing and overwhelming process with so much information available all around.
To make things a little easier for you, we’ve compiled a list of the lowest taxed states in the country with a little more information about each of them.
Most Tax-Friendly States in America
1. Alaska
Taking first place on the list, unsurprisingly, has the lowest tax rates in the United States at 5.26%. To understand why the percentage is this low, let’s get into the details, the first being that Alaska does not levy any income tax. This snowy wonderland is also the only state to not have a state sales tax, but there’s a catch – most counties collect their own taxes. These rates can go as high as 7%, which is currently being charged to the County/Borough of Wrangell. Property tax rates also vary depending on the county/borough, but the average effective property tax rate is 1.18%. Items like alcohol are heavily taxed, for example, beer has a tax of $1.07 per gallon, whereas any beverage that has an alcohol content higher than 21% has a tax rate of $12.80 per gallo
Alaska is a land of snowy beauty and vast landscapes that will enchant you to no extent. While people are rather skeptical of moving to this snowy state because of the constant rain and snow, there are many who want the adventure and experience. For those of you who do, we’ll tell you a little bit about living here. Alaska’s real estate market is affordable and you’ll be surrounded by a small-town charm that you don’t get when you live in a city. When it comes to jobs, there are many, but they’re specific to certain industries like military and fisheries. What you must note though is that the cost of living in this snowy wonderland and the fuel rates are high, and the heating costs mount up to more than you’ll give credit for.
Median price of homes for sale in Alaska: $265,385
Median rent per month in Alaska: $1,050
Tax Bites: Jurisdictions in Alaska can levy varied sales tax based on seasons. Whitter for example does not have a sales tax for the entire year, except for the months of April to September when the sales tax rate is 5%.
2. Delaware
With a total tax burden of 5.54%, Delaware stands in second place with the lowest tax burden. While you might think that Delaware doesn’t have income taxes, it actually does with tax rates ranging from 0% to 6.6%. But, you must note that social security benefits are not taxed in this state. Property tax rates in Delaware are low with the average effective tax rate at 0.56%. At the same time, what puts Delaware as number two on the list is the fact that it does not levy any sales tax. Even the taxes on alcohol are nonexistent, since the tax on beer is 26 cents for one gallon. On the other hand, the tax on liquor is $4.50 for a gallon and the tax on a pack of 20 cigarettes is $2.10.
Apart from the pristine and sandy beaches and the low tax burden, Delaware has other perks that residents enjoy. One of the biggest benefits is the affordable housing market that encourages many young professionals to invest in housing. At the same time, Delaware has a great education and job opportunities, even though it’s not in the top five in the country for both. What’s also great about living in Delaware is that you will have access to major metropolitan cities like Philadelphia, Washington, Newark, Baltimore, and New Jersey that are only a train ride away. If you’re looking for a retirement location, the state of Delaware might suit you, since it’s one of the best states for healthcare in the country, and the financial benefits are unparalleled.
Median price of homes for sale in Delaware: $231,900
Median rent per month in Delaware: $1,040
Tax Bites: According to data by the IRS, the average time a single individual takes to fill a Form 1040 is 16 hours, whereas the Form 1040A takes seven hours to fill and Form 1040EZ takes five hours!
Read Also: Moving To Delaware – Relocation Guide
3. Tennessee
In third place for the lowest taxed state is the wonderful state of Tennessee, with a total tax burden of 6.18%. We’ll break it down for you – Tennessee has no income tax, but don’t be fooled because it compensates for that in other places. Sales tax in the state is extremely high standing at an average of 9.55% and it also taxes groceries for which the tax rate is 4%. If you’re planning to invest in property, however, you can relax since the property tax rates are the fifteenth lowest in the United States with an average effective rate of 0.64%. You must also note that retirement income and social security benefits are also untaxed in Tennessee, since there is no state income tax.
Tennessee is a highly affordable place to live in, which is an attractive prospect for many people who move here. We also don’t need to tell you about the arts and culture scene in the state from the glorious Broadway to all the music festivals, it’s quite a happening place to be in. If you’re thinking of education, Tennessee also has some really good public schools, and the best part – high school graduates can attend community college for free! Other amenities like transportation systems and job opportunities are also above the average, so you can strike them off your list too.
Median price of homes for sale in Tennessee: $164,500
Median rent per month in Tennessee: $887
Tax Bites: Tennessee had something called the “Crack Tax” for illegal items like drugs up until 2007 when the tax was declared unconstitutional!
4. Wyoming
Apart from taking the place as the least populated state in the United States, Wyoming is also the fourth-lowest taxed state. Let’s start with the income tax rate – there’s none. But this isn’t what gives the state its ranking, it’s the low sales and property taxes too. Since Wyoming is an exception, its combined tax burden amounts to 6.47%. Let’s get into the specifics – sales tax in Wyoming is the lowest in the country standing at 4%. However, note that local municipalities can add an additional 2% to this rate depending on the county you live in. Property taxes here are also the tenth lowest in the country with an average effective rate of 0.57%. Excise tax on gas is also the second-lowest in the country at 23 cents per gallon.
From what you’ve read, we’re sure it comes as no wonder that Wyoming is affordable to live in with even low housing prices. Since the population is also low, job shortages won’t be a problem. However, you must note that you might see a shortage in the variety of jobs and schooling options. Living in a less crowded place comes with its benefits and what you will fall in love with is the clean air, the landscape, and low crime rates. Wyoming also has opportunities for a large number of outdoor recreational activities like fishing and skiing, so if you’re an outdoorsy person, you might just enjoy it here.
Median price of homes for sale in Wyoming: $229,200
Median rent per month in Wyoming: $983
Tax Bites: Excise taxes are nothing but taxes on commodities like alcohol, gambling and tobacco. They’re also commonly referred to as the “sin taxes”!
5. Florida
The Sunshine State of the United States is sunny for another reason apart from the weather – no income taxes! It’s also the fifth-lowest taxed state in the country with a tax burden of 6.82%. If we were to explain this in detail, the situation is the same as Tennessee with high sales taxes. Even then it’s not exceedingly high with the sales tax rate of 6%, the catch is that counties can charge an additional tax of 0.5% to 2% which increases it to 7.5%. When it comes to property tax, the average effective rate is affordable at 0.83%. What you must account for though is their communication services tax (7.44%) and cigarette tax which is $1,34 per pack. Alcohol taxes are also high with the tax rate for beer being 48 cents for one gallon, $6.50 tax on one gallon of spirits, and $2.25 tax on one gallon of wine.
Not much needs to be said about Florida’s climate for which a large number of people travel and relocate to the state. Aside from that, Florida’s job market is thriving with all kinds of industries from aviation and security to pharmaceuticals and mining. At the same time, it’s a great place to raise a family with lush suburbs, the third-best education system in the country, and a low crime rate. On the contrary, what you must look into is the cost of living in Florida, which goes higher the closer you move towards major cities, which also hold true for real estate. In fact, this cost can go as high as 17% as compared to the national average.
Median price of homes for sale in Florida: $270,000
Median rent per month in Florida: $1,175
See also: Moving to Florida
Tax Bites: In a year, the Florida Department of Revenue processes an average of 9 million tax filings!
6. New Hampshire
Sixth place on the list is New Hampshire with a total tax burden of 6.86% which is extremely close to Florida’s total tax burden. With no income tax and sales tax, it’s no wonder that it’s in the top 10 of the lowest taxed states in the country. So, what’s actually being taxed? Even though there’s no income tax, residents in New Hampshire have to pay a 5% tax on interest and dividends. At the same time, there are special taxes, like a 9% tax rate on hotel rooms, 9% on meals in a restaurant, and 7% on communication services. Average effective property tax rates are also 2.05% which isn’t that high. As usual, excise taxes exist with $1.78 tax on a pack of cigarettes and 30 cents tax on one gallon of beer. One plus point here is that liquor and wine are not taxed.
While New Hampshire is a tiny state, what makes living here attractive is also its location – it’s close to everything from beaches and lakes to skiing and hiking. If you’re looking to raise a family, the state has much to offer, which includes a top-notch education system, lush landscapes with around 90 state parks, low crime rates, and quality healthcare. The state is also close to major cities like Boston, while also having a lower cost of living than those cities. As a result, people move to New Hampshire and commute to cities like Boston for work.
Median price of homes for sale in New York State: $335,000
Median rent per month in New York State: $1,465
Tax Bites: Up until 2003, New Hampshire had an estate tax which was called “The Legacy and Succession Tax” which still applies to.
7. Oklahoma
Last on our list is Oklahoma with a total tax burden of 7.12% which involves all three tax types – income, sales, and property taxes. Income tax rates in the state stand at 0.5% to 5% which are based on different income brackets. On the other hand, while sales taxes are low at 4.50%, counties levy their own additional state tax which can go as high as 7%, which makes the local sales tax in Oklahoma the highest in the country. When it comes to property taxes, the average effective tax rate is 0.87% which can differ from county to county. At the same time, beer has a tax rate of 40 cents per gallon, while other liquor has a tax rate of $5.56 for one gallon.
You might already know that Oklahoma ranks fourth in terms of the least expensive state in the United States because of the low cost of living and affordable real estate prices. One of the other highlights of living in the state is low commute time, since there’s hardly any traffic on the streets. Even the job opportunities are above average and when it comes to schooling, the state has the 21st largest schooling system in the country.
Median price of homes for sale in Oklahoma: $123,000
Median rent per month in Oklahoma: $802
Did you know?: Statistics have shown that annually Americans spend close to $27.7 billion just doing their taxes!
Which is the highest taxed city in the US?
Connecticut’s Bridgeport is the highest taxed state in the United States. Those that fall in the bracket of earning over $150,000 annually have to pay a 22% state and local tax rate.
Also Read: Moving To Connecticut – Relocation Guide
Which states have the highest property taxes?
New Jersey (2.21%), Illinois (2.05%), and New Hampshire (2.03) have the highest property taxes in the United States.
Which state has no property tax for seniors?
Delaware is called a tax haven for retirees specifically, because not only do they have low property tax rates, but they also don’t have sales and death tax.
See also: Best States to Retire
Conclusion
One of the biggest parameters that all of us look into while researching the places we want to move to is the taxes. The reason is pretty simple – low tax rates lead to a lower cost of living, which is a huge deal-breaker for many of us. While you look for states with low taxes, we suggest that you also look at other parameters like real estate prices, cost of education, transportation costs, etc, since if these prices are high, your cost of living will go up automatically.
Also Read: 10 Cheap States to Move to
