Are Tax Free States the Best or Worst Places to Live
There are nine states that do not pay an employee tax. But just because a country has no income tax doesn’t mean it’s an affordable place to live.
If a country doesn’t charge income tax, it has to get its income from somewhere else, which explains why some tax rates tend to be higher in these places. In addition, the cost of living in some states with no income tax has increased in recent years, often due to rising home insurance prices related to climate change, as well as higher housing prices in general.
The point is: Moving to a country with no income tax is not a bad money-saving strategy. In fact, if you don’t do the math to include some local living expenses, it can set you back a lot. (FYI, the states with no general income tax in 2025 are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.)
“The correlation between the cost of living and the absence of income tax in the country is weak,” Andrey Yushkov, a senior policy analyst of the Center for State Tax Policy at the nonpartisan nonpartisan Tax Foundation, explained to Money by email. “There are many other factors that affect the cost of living, including property and sales taxes, property taxes and home insurance. everyone to stay there.”
Rising home insurance costs and car insurance costs
The state with the highest home insurance rates is one with no income tax. According to online insurance marketplace Insurify, Florida has the most expensive homeowners insurance in the nation, with the average annual policy running at $10,675 by 2025. Home insurance in Texas, another state celebrated for having no state income tax, averages $4,789, good for the fourth-most expensive in the country.
These rates are more expensive than the national average ($2,584 as of 2025), and homeowners in many states are increasingly accustomed to rising insurance premiums. Washington has seen the nation’s largest increase in insurance costs through 2024, more than 20% year over year, according to S&P Global data.
It’s getting harder and harder to get cover, period.
Many home insurers have left states where climate change is causing costs to rise, including Florida, Louisiana, California and Colorado. Earlier this year, the Department of Finance released a report on what it called “shocking” increases in home insurance costs and a reduction in the availability of payment options in many areas.
It’s the same story for car owners, who have seen average car insurance prices rise to $2,324, up nearly 30% in two years. And, yes, according to Insurify, many of the states with the highest cost of auto insurance are states with no income tax: Nevada has the sixth-highest cost of auto insurance ($3,207 average for full coverage in 2025), while Florida ($2,967) comes in eighth.
The bottom line is that the difference in insurance costs across the country can have a big impact on a household’s budget and lifestyle.
“If someone is considering moving to a tax-free country to save money, they should first look at the auto and home insurance market in that country,” says Cassie Sheets, data reporter at Insurify. “Some states are seeing larger increases than others, and several states with no or low income taxes are among the most expensive.”
Consider property taxes, sales tax and other costs
Property taxes for homeowners vary greatly in different parts of the country. There are many counties in rural states where the average property tax is less than $300 a year, according to Tax Foundation data. Meanwhile, median property taxes in several urban counties in California, New York, New Jersey and Virginia are over $10,000.
Property taxes are assessed as part of the home’s assessed value. So instead of looking at property taxes in raw dollars, it’s important to consider the rates charged to understand their true impact on property owners.
Illinois has the highest property tax rates in the nation (1.83%), followed by New Jersey (1.77%). But sixth on the list comes New Hampshire (1.41%), which stands out from New England in having no general sales tax or income taxes. Texas, another state with no state income tax, has the seventh highest state income tax rate, at 1.36%.
In terms of sales tax, three states with no income tax rank among the top 10 for the highest rates: Tennessee charges 7%, while Nevada charges 6.85%. Sales tax rates in Texas (6.25%) and Washington (6.5%) are high in the grand scheme of things, too.
Countries with no income tax may charge sales tax on items such as groceries that are generally exempt. For example, South Dakotans voted to keep their grocery tax last year, with some voters saying they were worried property taxes would rise without it, according to the South Dakota Searchlight.
Depending on your spending habits, sales taxes in these states can add up to hundreds, if not thousands, of dollars to your budget each year.
As the Tax Foundation’s Yushkov told Money, “for high earners, income tax may be one of the most important factors” in deciding where to live, assuming they intend to keep as much of their money as possible. If you are not very wealthy or your wealth is not based on income, however, the financial benefits of living in a country with no income tax are less clear.
Before deciding to move to a state with no income tax, you should evaluate your individual circumstances, including “job opportunities, family considerations, climate, infrastructure, education system” and various local taxes, Yushkov said.
In addition to estate, purchase and general income taxes, people should find out whether the state taxes capital gains, dividends and Social Security benefits, too. It’s also worth looking at ongoing costs, such as utility bills: Research shows that New Hampshire has the highest utility costs in the US (adding about $4,500 a year), while Wyoming has the highest residential energy costs.
Cost of living in states with no income tax
Using data from Insurify, the Tax Foundation, Zillow and other sources, here are some location-specific factors to consider before moving to a state with no income tax:
Alaska
State sales tax rate: 1.82%
Property tax rate: 0.91%
Average home insurance per yearPrice: $1,197
Average car insurance per year: Not available from Insurify due to insufficient data
Other features: Cities can charge a local sales tax of up to 10%; Alaska also collects significant revenue from the oil industry.
In Florida
State sales tax rate: 6.95%
Property tax rate: 0.74%
Average home insurance per yearPrice: $10,675
Average car insurance per yearPrice: $2,967
Other features: Home prices have soared, up 50% in five years.
Nevada
State sales tax rate: 8.24%
Property tax rate: 0.49%
Average home insurance per yearPrice: $1,370
Average car insurance per yearCost: $3,207
Other features: Nevada collects significant gambling-related revenues.
New Hampshire
State sales tax rate: 0%
Property tax rate: 1.41%
Average home insurance per yearPrice: $1,226
Average car insurance per yearPrice: $966
Other features: Utility bills are among the highest in the nation.
South Dakota
State sales tax rate: 6.11%
Property tax rate: 0.99%
Average home insurance per yearPrice: $2,871
Average car insurance per yearPrice: $1,876
Other features: Charges sales tax on items that are normally exempt, such as groceries.
Tennessee
State sales tax rate9.56%
Property tax rate: 0.49%
Average home insurance per yearPrice: $2,584
Average car insurance per yearPrice: $1,652
Other features: Charges sales tax on items that are normally exempt, such as groceries.
Texas
State sales tax rate: 8.20%
Property tax rate: 1.36%
Average home insurance per yearPrice: $4,789
Average car insurance per yearCost: $2,703
Other features: Texas collects significant funds related to the oil industry.
Washington
State sales tax rate9.43%
Property tax rate: 0.75%
Average home insurance per yearPrice: $1,470
Average car insurance per year$2,038
Other features: Taxes 7% on capital gains over $250,000.
Wyoming
State sales tax rate: 5.44%
Property tax rate: 0.55%
Average home insurance per yearPrice: $1,740
Average car insurance per yearPrice: $1,229
Other features: Sales tax levied on diapers and feminine hygiene products, energy costs remain high as well.
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