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The 9 places in the US where Americans don't pay state income taxes

Feb 6, 2018, 22:54 IST

Jamie Squire/Getty

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  • Taxes are due by April 17 this year.
  • Most Americans should file a state income tax return and a federal income tax return.
  • If you live in a state with no state income tax, you may not need to file a state return.

Every American taxpayer must file their taxes by April 17.

While nearly everyone has to file a federal tax return, some people are off the hook when it comes to filing a state tax return.

That's because seven US states don't impose state income tax - Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

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New Hampshire and Tennessee don't tax earned income either, but they do tax investment income - in the form of interest and dividends - at 5% and 6%, respectively. If you live in either state and received income from your investments, you'll need to file a state return.

The other 41 states have either a flat income tax - meaning everyone, regardless of how much they earn, pays the same percentage of their income to the government - or a progressive income tax, which means your tax rate is determined by your income.

But living in a state with no income tax doesn't necessarily mean you're getting off scot-free. Texas and New Hampshire, for instance, may not tax your earnings, but they do have some of the highest property tax rates in the country, which could ding you if you're a property owner.

Likewise, Tennessee doesn't tax your paycheck, but it will get you in the checkout line. The state has one of the highest sales tax rates in the country at 7%.

Still, everyone is subject to federal income taxes regardless of where you live. How much you pay depends on how much you earn, also known as your tax bracket.

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Although President Donald Trump signed the Republican tax bill into law at the end of December, new federal tax brackets will only affect income earned starting January 1, 2018. You'll see those changes when you file your 2018 taxes next year.

After you file your taxes, you may get a state tax refund or a federal tax refund - or both if you live in a state that taxes income. The IRS says the fastest way to get your tax refund is the method already used by most taxpayers: filing electronically and selecting direct deposit as the method for receiving your refund.

Last year, the IRS sent $324 billion back to taxpayers. Nearly eight out of 10 people received a federal tax refund worth an average of $2,895. Interestingly, Maine, whose top income tax rate is one of the highest at 10.15%, had the lowest average federal tax refund, with $2,302. Texas - which doesn't tax earned income - had the highest average federal refund at $3,133.

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