Is It Worth It to Move to a Low-Income Tax State to Save Money?

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Many people in the United States have decided that it would be a good idea to move to a low-income tax state—or to a no-tax state—to save money. While it may sound like a good idea—it’s time to find out—is it worth it?

An article from The Washington Post reported that the states that have lost the highest percentage of their taxpayers recently were the states that had the highest taxes. Those states included California, Illinois, New York, Massachusetts, and New Jersey.

Numerous professionals have made calculations over the years on the value of moving to save money on taxes. Unfortunately, they report that many people who made this move did not calculate enough other factors to accurately determine whether it was worth it or not before moving. In many cases, they only looked at one or two issues—usually whether or not a particular state charges income tax.

Low-Income Tax States

According to TurboTax, five of the states where people are paying the most income taxes in 2021 include California (12.3 percent); Hawaii (11 percent); New Jersey (10.75 percent); Oregon (9.9 percent); and Minnesota (9.85 percent). Each state determines the rates for deductions, exemptions, credits, etc.

Eight states do not have a personal income tax. They include Wyoming, Washington, Texas, Tennessee, South Dakota, Nevada, Florida, and Alaska.

If you use just the above information to base your decision on whether to stay or move—the decision is easy. It is where many people that have moved have made their mistakes.

Taxes Will Be Raised Somehow

When a state does not charge an income tax, you can be sure that the money needed to run the state will come from other sources—i.e., other taxes. Most often it will be either sales tax or property taxes—or both. Because of every state’s dependency on tax money, a state with no income tax is apt to have higher sales and property taxes than where you live now.

If you have a business that produces income in another state, you may still be required to pay income taxes to that state after you move. You will also pay sales and property tax in the state you move to—which means you may not save much money—if any.

States With No Sales Tax

According to MoneyGeek, only four states do not have a sales tax. Those states include New Hampshire, Oregon, Montana, and Delaware.

State Comparisons Showing Income, Sales, and Property Taxes

MoneyGeek has a chart that places a grade on each state’s taxes, from the best (A) to the worst (E). The chart looks at the three most common taxes and provides a monetary amount showing the average someone living in that state would pay if they made around $82,000 per year, owned a house worth $349,400, and had one child.

The chart reveals that someone living in Wyoming would pay the least taxes (4 percent of their income), and people living in Illinois in that same situation would pay the most—$13,894 (16.8 percent of their income). Four other states that have the lowest taxes include Nevada (4.7 percent), Alaska (5.4 percent), Florida (5.6 percent), and Tennessee (6.5 percent).

When calculating whether or not it will cost less in another state, you need to consider all taxes you may need to pay. Property tax depends on the size of the property you buy when you move. If you buy a larger property, your taxes may not be much different than where you are now.

Lower Income Sources

In states or areas with a lower cost of living, you will usually find that the income potential is also lower. You will probably make less money—which also means you will pay fewer taxes.

If you are looking for places to move to with fewer taxes and a lower cost of living, you also need to consider other factors. Forbes rates the 10 cheapest states to live in.

Mississippi is rated as the cheapest state to live in. It also has the lowest cost of housing and transportation. It also has warm weather and winters that are mild. It has problems in its education system, poverty rate, and fewer job opportunities.

Kansas, the second cheapest state in the nation, has a low unemployment rate, and housing costs are 27.4 percent below the national average. Problems include considerable distances to airports and frequent tornadoes.

Cost of Living Comparisons

When moving from one area to another, the cost of living changes. You also need to know about the cost of groceries, health care, utilities, and transportation. A cost-of-living calculator can show the difference between where you are now and where you intend to move. BestPlaces can give you a good idea of the differences in costs.

Some states that do not have an income tax have recently seen a larger influx of people leaving states with an income tax. While those states may benefit from the abundance of employees, the lack of an income tax may come with a price. According to an analysis from the U.S. Census Bureau, South Dakota and Wyoming spent the least on education than all other states.

Other Factors to Consider in Your Calculations

When making your calculations, you also need to look at other factors to help determine whether moving to a different state is really a good idea. Kiplinger suggests that you need to think about your starting income, income from your spouse, known tax rates, your income, and how much spendable income you have left after paying your monthly bills.

Before making your move, consider the costs carefully. Learn all you can about the new location. Find out what you like and dislike about the new area. If you plan on downsizing or retiring there, can you afford to live there for many years?

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.