The No-Income-Tax Thing Is Not What You Think It Is

By Jay Kimbol · August 30, 2025 · More posts

My girlfriend's brother lives in Florida. He's a contractor, runs his own thing, makes pretty good money. Every time I see him at a family thing he leans in like he's about to share a secret and tells me, again, that I'm an idiot for paying Illinois income tax.

"You know there are nine states with no income tax, right?" That's how he opens. He's said this to me at three separate cookouts. Once at a wedding. The phrasing is always identical, like he's reading it off a card. He works at it.

And the thing is, he's not wrong. There are nine states with no income tax: Alaska, Florida, Nevada, New Hampshire (wages only, dividends used to be taxed), South Dakota, Tennessee, Texas, Washington, and Wyoming. If you're an Illinois resident making $71,000 like me, the state takes about 4.95% of your wages. That's roughly $3,500 a year I'd keep just by leaving Illinois. Real money. He's right about that part.

But after the third or fourth cookout I started actually looking into the rest of the picture, because the gap between "no income tax" and "lower total tax burden" turned out to be a lot bigger than her brother's monologue suggested. I've now spent enough lunch breaks down this rabbit hole to feel comfortable saying: the no-income-tax thing is real, but it's about half the size of what people think it is, and in some states it's basically a wash.

Here's what I found, going state by state.

Texas. The classic. No state income tax. But Texas has some of the highest property taxes in the country — the effective rate averages around 1.6% to 1.8% of home value, depending on the county. Travis County (Austin) is closer to 1.9%. On a $400,000 house, which is below median in most Texas metros now, that's $7,200 to $7,600 a year. Illinois has high property taxes too — around 2.05% — but Illinois homes are cheaper, so the dollar amount ends up similar. Where Texas really stings is if you make a lot of money: the no-income-tax part scales infinitely with your salary, but property tax is fixed by your house. So a $300k earner in Houston wins big. A $71k IT support guy renting an apartment? My landlord pays the property tax and just bakes it into the rent. I'd save the $3,500 in income tax and not see most of the property tax savings on the other side.

Florida. No state income tax, lower property tax than Texas (around 0.8% effective), and on paper it looks great. The thing nobody mentions until you're actually shopping for a place is what's happening with insurance. Homeowners insurance in Florida has roughly tripled over the last few years — the state average is now over $6,000 a year, and in coastal counties it can be $8,000 to $12,000. Some carriers have stopped writing new policies entirely. If you're buying a house in Tampa or Miami, the insurance line is doing a lot of the work that an income tax does in other states. HOA dues for condos are also wild — I looked at a place in St. Pete that had a $720/month HOA fee, and that's after a special assessment for the building's concrete recertification, which is a thing Florida now requires by law since the Surfside collapse. So Florida is real savings if you rent, less real if you own, and a roll of the dice if you own near the coast.

Tennessee. This is the one that surprised me the most. No state income tax on wages. Sounds great. Then I noticed grocery bills in Nashville are weirdly high, and it's because Tennessee taxes groceries. The combined state and local sales tax in most of Tennessee is about 9.55%, and groceries get hit at 4% (recently reduced from higher). Tennessee has the highest average sales tax in the country. If you spend $600 a month on groceries, that's an extra $24 a month versus Illinois (which doesn't tax groceries at all anymore as of 2024). On non-grocery spending, the gap is bigger. Tennessee makes back a lot of the income tax savings on the sales tax side, especially for people who spend most of their paycheck rather than save it.

Washington. Seattle has a combined sales tax of around 10.25%. No state income tax, but Washington has a "Business and Occupation" tax that hits anyone running their own business, including a lot of remote freelancers and consultants. The state recently introduced a 7% capital gains tax over $250k, which doesn't affect me but does push back on the "no income tax" branding a bit. Property taxes in King County are around 0.93%, but home prices are absurd — the median house in Seattle is over $850,000. The tax math on Washington might work for a high earner with a fixed-cost lifestyle. For a guy making $71k who'd be renting, Seattle costs significantly more than my Logan Square situation, and the state tax savings don't come close to closing that gap.

Nevada. No state income tax, no estate tax, sales tax around 8.4% in Vegas. Property taxes are pretty low (~0.6% effective). The honest issue with Nevada now is that Vegas housing has caught up to the rest of the Sunbelt. A 1-bedroom in a decent part of Vegas runs $1,400 to $1,700, which isn't the bargain it was in 2015. If your job lets you live somewhere cheaper in Nevada, like Reno or one of the smaller towns, the math is more interesting. But Reno is also not cheap anymore. The "go to Vegas to escape California" trade was great in 2018. Now it's mid.

South Dakota and Wyoming. Genuinely low tax burden across the board. Both have no state income tax, modest sales tax, low property tax. The catch is that there are not very many places to live, and if you have a job that requires being near other humans for any reason, your options are limited. Sioux Falls is genuinely a real city. Cheyenne is fine. After that you're looking at small towns. If you're a remote worker who is also okay with cold winters and small grocery stores, this is unironically the move. I am not that person, but I respect that person.

Alaska. No state income tax, no state sales tax, plus they pay residents an annual oil dividend that was around $1,700 last year. On paper this is the best deal in the country. In practice, Alaska is Alaska. Cost of getting groceries shipped to anywhere off the road system is high. Heating costs are real. If this works for you, you already know it works for you.

New Hampshire. No income tax on wages. Used to tax dividends and interest but phased that out by 2025. Pairs well with working remote for a Massachusetts company while living in Manchester or Nashua. Property taxes are high — the effective rate is around 1.9%, similar to Illinois. So you get back the wage tax but pay it back in property taxes if you own.

Here's what I think the actual lesson is, and I want to phrase this carefully because I'm pretty sure I'm right but I'm also not an accountant.

States have a budget. They have to fill it. They do that with some combination of income tax, sales tax, property tax, and miscellaneous taxes. If a state takes the income tax slider and pulls it to zero, that money is coming from one of the other sliders. Texas pulls property tax up. Tennessee and Washington pull sales tax up. Florida lets insurance and HOAs absorb part of the gap. The total tax burden — what economists call the "tax wedge" — ends up surprisingly similar across most states, especially in the middle of the income distribution. The Tax Foundation's state rankings have Tennessee at a lower total burden than Illinois, sure, but the gap is more like 1-2% of income, not the headline 4-5% the income tax difference suggests.

For high earners, the no-income-tax states win clearly. Income tax scales with your income; property tax and sales tax mostly don't. If you make $300k a year, moving from California (top bracket 13.3%) to Texas saves you tens of thousands annually that you can't really lose to property tax unless you buy something extravagant.

For people in my range — $50k to $100k, renting, normal middle-class spending — the no-income-tax move saves you something, but it saves you less than you think. Maybe a third less, maybe half less, depending on where you go. That's still real. Three thousand dollars a year is still three thousand dollars a year. I'm not arguing against it. I'm arguing against the pitch deck version of it.

I plugged my numbers into the comparison tool for a few of these moves — Chicago to Austin, Chicago to Nashville, Chicago to Tampa — and the purchasing power differences land between 3% and 8% in my favor, mostly. Some moves are net negative because the cost of living absorbs the tax savings. Memphis is the only "no income tax" city that came back massively positive for me, and Memphis has its own complicated reputation that I'm not going to pretend isn't real.

So what do I tell my girlfriend's brother at the next cookout?

Probably nothing. He's not actually wrong, just oversimplified. And he likes giving the speech. I'll let him.

Jay Kimbol is still in Chicago, still researching, still hasn't signed the lease. The next post is up: The Cities That Surprise You. (Not Austin, Not Nashville.) — the four Rust Belt and Sunbelt cities that quietly came out on top in the spreadsheet.