How living in a no-income-tax state can still cost you more

No income tax is not the full story

A paycheck with no state income tax sounds like an instant win. That is why so many people look at places like Florida, Texas, or Tennessee and think the math will work in their favor. But a lower tax on wages does not always mean a lower cost of living.

Money reported that the nine no-wage-income-tax states in 2025 were Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

The bigger lesson is simple: those states still need revenue, and families still face housing, insurance, and shopping costs.

The missing math can sting

When a state skips income tax, the money often has to come from somewhere else. That can mean higher sales and property taxes, or greater pressure on insurance costs. So the “cheaper state” idea can fall apart once real bills show up.

This has become a bigger deal as insurance costs have climbed around the country. Treasury said in 2025 that homeowners’ insurance costs were rising and availability was declining in some areas, especially those hit harder by climate-related risks.

Florida’s low tax comes with a catch

Florida is a clear example of the tradeoff. Money cited high insurance costs for the state, including homeowners and car insurance figures that can run into the thousands of dollars per year.

Florida’s average combined state-and-local sales tax rate is about 6.95%, and AARP reports an effective property tax rate of about 0.74%.

Housing has also risen sharply: the FHFA all-transactions home price index for Florida increased from 514.48 (Q4 2020) to 823.56 (Q4 2025), a gain of about 60% over five years.

Texas is not always the bargain

Texas keeps its no-income-tax reputation, but other bills can be heavy. The average combined state-and-local sales tax rate is about 8.20%, and AARP reports an effective property tax rate around 1.36%.

Money also cited thousands of dollars per year in homeowners and car insurance costs for Texas, which can quickly offset income-tax savings for some households.

Insurify has also reported that Texas full-coverage auto insurance costs are above the national average in recent years.

Nevada shifts the cost elsewhere

Nevada does not tax wage income, but that doesn’t mean life is automatically cheaper.

Nevada’s average combined sales tax rate is about 8.24%, and AARP lists an effective property tax rate of around 0.49%. Money also cited significant car and home insurance costs for the state.

The takeaway: a low income tax burden can be offset by other costs that show up in everyday spending.

Tennessee gets you at the register

Tennessee does not tax wages, but shoppers feel the difference. Money listed the state’s average sales tax at 9.56%, one of the highest on this list, while the Tennessee Department of Revenue says the general state sales tax is 7%, and local rates can go up to 2.75%.

It is also not true that every food purchase escapes tax there. Tennessee says food is taxed at a 4% state rate, plus local tax, which means routine grocery spending can still add up over time. That is easy to miss if you only look at income tax.

Washington has other tax layers

Washington has no tax on ordinary wage income, but that does not mean there are no tax surprises. Money listed its average sales tax at 9.43%, property tax at 0.75%, and average car insurance at $2,038. That gives everyday spending a much bigger role in your budget.

Washington also taxes some capital gains. The state Department of Revenue says there is a 7% tax on certain long-term capital gains, which means higher earners and investors still need to read the fine print carefully.

New Hampshire flips the pattern

New Hampshire stands out because it has 0% sales tax, which sounds great at checkout. But Money reported its property tax rate at 1.41%, one of the highest among no-income-tax states, with home insurance at $1,226 and car insurance at $966.

The article also noted that utility bills there are among the highest in the nation. So while New Hampshire can look lighter on taxes in one part of the budget, it can turn around and feel heavier in home-related costs.

South Dakota adds cost at checkout

South Dakota can look affordable at first glance, but costs still stack up. The average combined sales tax rate is about 6.11%, and Money also cited meaningful home and auto insurance costs for the state.

South Dakota’s state sales and use tax rate is 4.2%. Cities may add a municipal sales tax of up to 2%, and some municipalities may also impose a 1% municipal gross receipts tax on certain categories, including lodging and eating establishments.

Alaska is cheaper in some ways

Alaska is a little different from the other states on this list. Money reported average home insurance there at $1,197 and a property tax rate of 0.91%, and said Insurify did not have enough data to publish a statewide car insurance average.

It also helps that Alaska does not have a statewide sales tax. But the Tax Foundation notes that Alaska still has an average combined state and local sales tax rate of 1.82%, because local governments can levy their own taxes. So even here, “no tax” does not mean zero added cost.

Wyoming still has costly basics

Wyoming is often marketed as a simple, low-tax state. The average combined sales tax rate is about 5.44%, and AARP lists an effective property tax rate around 0.55%. Money also cited meaningful home and auto insurance costs that can still add up in a household budget.

Beyond taxes, everyday costs like utilities can vary widely. Wyoming also stands out for energy use: the U.S. Energy Information Administration ranks Wyoming No. 1 for residential energy consumption per capita (2023).

Fun fact: Wyoming remains the nation’s least populous state.

Who benefits most from tax-free wages

Tax experts say the answer depends on who you are and how you earn money. In Money’s reporting, Tax Foundation analyst Andrey Yushkov said income taxes tend to matter more for higher-income individuals trying to keep more of their earnings, which can make the no-income-tax pitch more attractive for some households than others.

For everyone else, the picture can be blurrier: the benefits can be less clear if you are not wealthy or if your wealth is not mainly based on wage income.

Federal tax rules can also change what homeowners owe—for example, recent changes affecting deductions like SALT can materially affect some households’ tax bills.

The internet is also talking about how Trump’s new plan could save homeowners thousands on their taxes.

What to compare before you move

A smart move is to compare more than one line on a tax map. Money says shoppers and movers should consider property taxes, sales taxes, home insurance, car insurance, utilities, and whether the state taxes capital gains or Social Security benefits. That gives you a more honest picture of what life will actually cost.

You also need to think beyond bills. The same report points to job opportunities, family needs, climate, infrastructure, and schools as part of the real decision. A state can save you money on paper and still make everyday life more expensive.

A proposed tax hike for top earners could add new pressure to New York’s economy. Check out how Mamdani proposes a 2% tax increase for high-income New Yorkers.

Would you still move to a no-income-tax state after adding up the real costs? Share your thoughts in the comments.

This slideshow was made with AI assistance and human editing.

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