If you’re dreaming of lowering your tax bill, you’ll probably want to live in the US states with no income tax. Currently, 7 US states are exempt from state income tax – Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Two more states are on this list - New Hampshire and Tennessee. They don’t impose a state income tax but charge investment income tax.

It’s a major attraction for people that they don’t have to pay taxes. Lesser do they realize that states with no income tax balance the lost revenue from other tax sources or reduced services. Also, you cannot measure affordability in these states without considering healthcare, living costs, and job opportunities.

However, if you’re an entrepreneur, you may be required to use a paystub generator for your employees even if you live in a state with no income tax.

Why these states are income-tax-free?

The decision of charging taxes is up to state lawmakers. The above-mentioned states that don’t charge income tax are driven by the ideals of their tax policy. They may aim to attract new residents or cover those tax amounts via other revenue sources.

For instance, Alaska was made an income-tax-free state after the oil boom in the 1970s. The oil industry is Alaska’s largest income source. The lawmakers of Alaska then decided that their oil industry is an adequate source of income & they don’t need to charge their residents with income taxes.

How do tax-free states fulfil the lack of revenue?

States with no income tax must adjust for other revenue sources as they aren’t imposing taxes on you. The balance is created via higher property taxes, fuel taxes, sales taxes, and others. This simply means that your employer is free from the responsibility of check stub maker, but you’re still paying more overall taxation.

Let’s say, for example, New Hampshire does not have a sales tax, but this US state and Texas reportedly have the highest average property taxes.

Earning Income outside Tax-free States of the USA

You'll have to pay taxes if you’re living in the USA states apart from the tax-free ones. Reporting income is mandatory. This is the reason why employers use check paystub makers. Even if you have earned income from the tax-free status, if you’re a non-resident there, you’ll have to file tax returns of your state of residence. Employers must also produce and distribute W2 forms online to help their employees file taxes.

Retirement Income Taxes

Regarding retirement income taxes, 43 US states levy some kind of income tax, but 36 of them& the District of Columbia make it easy for retirees. Retired seniors are exempted from taxes after they retire. Some states exempt partial retirement income, while others exempt it.

For instance, Social Security Income is exempted by Kansas if the adjusted gross income from all sources is $75000 or less. Similarly, Hawaii makes you tax-free from contributory retirement plans, while Pennsylvania does not impose any private-sector pension income. In opposition, retirees living in Arizona must pay Arizona state tax forms on any taxable distribution from the ASRS over $2,500 per year.

The Bottom Line

Don’t judge a state by its low tax rates or no tax charges. Consider the complete picture only after adding affordability, job opportunities, and cost of living. Meanwhile, you may create a paystub online & save bucks, regardless of living in an income-tax-free state.