States that do not file state income tax

There can be two scenarios. You live in a tax-free state but earn an income in another state that levies an income tax. Or you live in a state that taxes your income but you earn income in one of the tax-free states. In the first case, you must file a non-resident income tax return in that state even if you don't live there. You must report your earnings from the tax-free states on your home state tax return in the second case. Low taxes don't paint the complete picture of the living expenses and conditions of the state.

Knowledge about the types of taxes you may pay in a particular state can be handy if you are tax-conscious. You might be paying more in overall taxation in the state with no income tax than the state with an income tax. Depending on your lifestyle and spending habits, tax payments can vary. If you don't own a property, you might not be bothered by the property tax. It is also possible that you like the place or may want to stay close to your family regardless of the taxes.

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The Bottom Line. States with no income tax often make up the lost revenue with other taxes or reduced services. A state's overall tax burden, which measures the percent of income paid in state and local taxes, could be a more accurate measure of its affordability than its income tax rate alone. Other factors—including healthcare, cost of living, and job opportunities—are also important in determining how expensive a state is. Alaska had the lowest tax burden in the U.

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