Why State Taxes Matter More Than You Think
Federal taxes get most of the attention, but state taxes can easily add 5% to 13% on top of your federal bill — or nothing at all. The difference between living in California (top rate 13.3%) and Texas (0%) on a $200,000 income is over $17,000 per year. Over a decade, that's $170,000 in cumulative savings, before accounting for investment growth on those savings. But the headline income tax rate tells only part of the story. States without income tax often compensate with higher property taxes, sales taxes, or fees. A complete comparison requires looking at the total tax burden — the combination of all state and local taxes as a percentage of income.
The No-Income-Tax States
Nine states currently levy no income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire is a partial exception — it taxes interest and dividend income at 3%, though this is being phased out by 2027. Washington has no income tax on wages but enacted a 7% capital gains tax on gains exceeding $270,000 in 2022.
These states attract high earners and retirees, but the absence of income tax doesn't automatically mean a lower total tax burden. Texas, for example, has property tax rates averaging 1.60% — among the highest in the nation. On a $500,000 home, that's $8,000 per year. Tennessee has the highest combined sales tax rate in the country at over 9.5% when local taxes are included. Washington's sales tax averages 8.9%, and Nevada's averages 8.2%.
Alaska is the true outlier: no income tax, no state sales tax, and residents receive an annual Permanent Fund Dividend from oil revenues. However, local sales taxes exist in some areas, and the cost of living (particularly housing and goods) is significantly higher than the lower 48.
High-Tax States: What You Get for Your Money
California (13.3% top rate), Hawaii (11%), New Jersey (10.75%), Oregon (9.9%), and Minnesota (9.85%) consistently rank among the highest income tax states. Before dismissing these states, consider what the taxes fund. California and New Jersey rank among the top states for public education. Minnesota consistently ranks in the top 5 for quality of life, health outcomes, and infrastructure. Oregon has no sales tax, which partially offsets its high income tax.
The real question isn't "which state has the lowest taxes" but "which state gives me the best value for my total tax burden given my priorities." A family with children in public school may find that California's higher taxes are offset by education quality. A retiree with no children may find Florida's zero income tax — combined with no estate tax and moderate property taxes — to be optimal.
New York deserves special mention. The state's top rate is 10.9%, but New York City adds its own income tax of up to 3.876%, bringing the combined city and state rate to 14.776% — the highest combined rate in the country.
The Flat-Tax States
Several states have adopted or are moving toward flat income tax rates, where all income above a basic exemption is taxed at the same rate. As of 2025, flat-tax states include Colorado (4.4%), Illinois (4.95%), Indiana (3.05%), Kentucky (4.0%), Massachusetts (5.0%), Michigan (4.25%), New Hampshire (3% on investment income only), North Carolina (4.5%), Pennsylvania (3.07%), and Utah (4.65%).
Flat taxes are simpler to calculate and administer, but they're also less progressive. A family earning $40,000 and a family earning $400,000 pay the same rate. Proponents argue flat taxes encourage economic growth and reduce compliance costs. Critics argue they shift the burden toward lower-income residents.
Pennsylvania's 3.07% flat rate is notably low, but the state offers very few deductions — you can't deduct mortgage interest, charitable contributions, or most other expenses that reduce federal taxable income. This means the effective rate is higher than it appears compared to states that start with federal taxable income.
Total Tax Burden: The Number That Actually Matters
The most accurate way to compare states is the total state and local tax burden as a percentage of income. This includes income tax, property tax, sales tax, and other taxes and fees. By this measure, the lowest-burden states are typically Alaska, Wyoming, Tennessee, South Dakota, and Florida. The highest-burden states tend to be New York, Connecticut, New Jersey, Illinois, and California.
However, total burden varies significantly by income level. A high earner in California pays heavily on income tax, while a moderate earner with an expensive home in Texas pays heavily on property tax. Sales taxes hit lower-income households harder as a percentage of income. The "best" state depends entirely on your income level, homeownership status, spending patterns, and what you value in public services.
Use our state comparison tool to calculate your personal total tax burden in any two states side by side — factoring in your actual income, home value, and spending to get an accurate picture of where you'll keep more of your paycheck.