24 June 2022

TOPIC: Tax-friendly states

 

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In this blog, we are discussing the top 11 tax-friendly states in the USA. The states listed below are scored based on how friendly they are towards retirees and middle-class families. 

If you’re considering moving this summer, this blog will help you move into a state that will save you money! 

 

So let’s get started, shall we? 

 

  1. California

Quick Stats:

  • State sales and average local tax: 7.25%
  • State tax on Social Security: None
  • State Income Tax Range: 1% to 13.3%
  • Effective property tax: 0.73%
  • Income tax rate (65+): 1% to 13.3%.

 

Now I know it might be shocking to see California on this list. Especially after the big move out we had these past two years. 

 

While California’s tax system may not favor high-income earners, businesses, and retirees, it is reasonable for middle-class families.  

 

In California, the median household income was $78,672 in 2020. This means your average family would only be paying 6% in income taxes, which is 3.8% lower than what most Americans pay in state income taxes. 

 

Taxes aside, middle-class families still have a relatively high cost of living in this state. 

 

California’s cost of living is 50% higher than the national average. So that is one thing you’ll want to consider before moving to California as a middle-class family. 

 

  1. North Dakota

Quick Stats:

  • State sales and average local tax: 6.96%
  • State tax on Social Security: None
  • State Income Tax Range: 1.10% to 2.90%
  • Effective property tax: 0.95%
  • Income tax rate (65+): 1.10% to 2.90%

 

North Dakota is another state that is great for middle-class families. Its income tax is so small most middle-class families won’t even feel it. 

 

The state sales tax is 5%, and the local government can add up to 3.5% in taxes. According to the Tax Foundation, the average combined state and local sales tax rate is 6.96%.

 

The property taxes in this state are also not bad. In 2020 your average home in the U.S. had an effective rate of 1.1% in property taxes. So you’ll be saving a little in taxes by owning a property in this state. 

 

  1. Arizona

Quick Stats:

  • State sales and average local tax: 8.40%
  • State tax on Social Security: None
  • State Income Tax Range: 2.59% to 4.50%
  • Effective property tax: 0.67%
  • Income tax rate (65+): 3.34%

 

There are a lot of good things to say about Arizona. If you’re considering moving to Arizona, you’ll be surprised that the state is very tax-friendly. 

You can stay warm all year round and receive your full social security benefits without worrying about taxes. 

 

The state has pretty low-income tax, but the higher your income, the more you’ll pay in taxes. 

 

However, you can rest easy knowing that the most you’ll pay in income taxes will still be slightly less than average. 

The property taxes in this state are also very low, which is great for anyone who wants to own a house. 

 

  1. Washington 

Quick Stats:

  • State sales and average local tax: 9.29% 
  • State tax on Social Security: None
  • State Income Tax Range: None
  • Effective property tax:  0.92%
  • Income tax rate (65+): None

 

Washington is one of those select few states that have no income tax. As a result, there is no tax on social security benefits. So naturally, this makes it desirable for the middle class and retirees. 

But without that income tax break, Washington wouldn’t be on this list. Sales tax is pretty high at 6.5%, and when you combine it with local sales tax, you’ll get a whopping 9.29%. 

 

  1. South Dakota

Quick Stats:

  • State sales and average local tax: 6.40%
  • State tax on Social Security: None
  • State Income Tax Range: None
  • Effective property tax:  1.22%
  • Income tax rate (65+): None

 

Just like Washington, this state has no income tax. Instead, it has average sales and local state tax. Unfortunately, its property tax is higher than the national average, so it will get pretty expensive tax-wise to own a house here. 

 

That being said, if you’re a middle-class family who is okay with renting an apartment, you can still take advantage of the no income tax without paying expensive property taxes. 

 

  1. Alaska

Quick Stats:

  • State sales and average local tax: 1.76%
  • State tax on Social Security: None
  • State Income Tax Range:  None 
  • Effective property tax:  1.02%
  • Income tax rate (65+): None

 

This state is considered the most tax-friendly states for retirees. 

Alaska is another tax-friendly state that charges no income tax. It is also one of the five states with no sales tax. However, it does have a local sales tax, which is averaged out to be 1.76% (can get up to 7.5% max). 

 

While the state has no income tax for the individual, it does have a 2.0% to 9.40% corporate income tax

Its cost of living is also higher than other states, which can scare away some middle-class families. However, if you’re retired and can afford the cost of living, this might be the best state to live in for retirees

 

  1. Tennessee

Quick Stats:

  • State sales and average local tax: 9.55%
  • State tax on Social Security: None
  • State Income Tax Range: None
  • Effective property tax: 0.73%
  • Income tax rate (65+): None

 

I’m sure you are starting to notice a trend here. Tennessee is another tax tax-friendly that charges no income tax, automatically putting it in the top five of this list. 

Yet, what separates it from states like Alaska and South Dakota is that it has low property taxes.

So your average middle-class family will end up paying well below the national average in property taxes to live here. 

 

The one thing holding Tennessee back is its state and local tax rate. Shopping can get pretty expensive in this state because its state tax rate is at 7%, and you could pay up to 2.75% in local taxes. 

So while you can expect to save a lot in taxes by living in this state, you’ll be paying that back in your grocery bill. 

 

  1. Delaware

Quick Stats:

  • State sales and average local tax: None
  • State tax on Social Security: None
  • State Income Tax Range: 2.2% to 5.55% and 6.60%
  • Effective property tax: 0.58%
  • Income tax rate (65+): 5.55%

 

Delaware is like that bag of skittles you used to eat in school. Tax-wise there are some things good and some bad about this state. 

Delaware’s income tax is pretty high for middle-class families. If you are making over $60,000, then you will get hit by a 6.6% tax rate, which is pretty high. 

 

That said, it has no sales and local state taxes, which means you can shop without paying a single dime in taxes (Take that, Tennessee!). 

The state doesn’t tax social security benefits, making it tax-friendly for retirees. It also has very low property taxes (6th lowest in the nation), so you can buy a nice house and pay very little in taxes! 

 

  1. Florida

 

Quick Stats:

  • State sales and average local tax:  7.01%
  • State tax on Social Security: None
  • State Income Tax Range: 
  • Effective property tax:  0.94%
  • Income tax rate (65+): None

 

There are plenty of reasons why tons of people are moving to Florida. It’s a beautiful place filled with nature, beaches, alligators, and Disney wonders.

It’s also a very tax-friendly state. Florida has no income tax, which keeps the tax burden low for retirees and middle-class families. 

 

It also does not tax social security, making it even more desirable for retirees. Hence, this is why you’ll find a lot of older adults here. 

However, that’s pretty much where the benefits end tax-wise. The property tax in Florida is very close to the national average, and its state & local tax rate is about average

 

  1. Nevada 

Quick Stats:

  • State sales and average local tax:  8.23%
  • State tax on Social Security: None
  • State Income Tax Range: None
  • Effective property tax: 0.66%
  • Income tax rate (65+): None

 

Nevada is another state that is hopping on the no-income-tax train. Due to it having no income tax, that also means no taxes on social security benefits. 

This state also has the 7th lowest property taxes in the nation (right behind Delaware). 

 

Of course, this state would have been perfect if it wasn’t for its sales tax! The sales tax in Nevada isn’t low.

The state sales tax is 6.85%, and when you add the local tax of 1.53%, you get a combined tax rate that is the 13th highest in the country. 

 

  1. The Best Tax-Friendly State: Wyoming 

Quick Stats:

  • State sales and average local tax: 5.22%
  • State tax on Social Security: None
  • State Income Tax Range: None
  • Effective property tax: 0.55%
  • Income tax rate (65+): 0%

 

The reason why this state made it #1 on our list is not just because of its natural beauty and national parks. 

Wyoming is the most tax-friendly state for middle-class families and retirees

 

Just like in Nevada, there is no income tax in this state. So naturally, there is no state income tax on social security benefits. 

Yet what separates it from other states is its low sales and property tax

 

If your family wants to buy a property with huge land, you could do so without worrying about getting hit with heavy taxes. 

 

Besides living in tax-friendly states to save money, you can do other things to lower your tax liability.

 

We created a blog explaining two ways to lower your tax bill legally. If you want to learn these two methods and how they work, click here.