Seven states have no income tax and two only tax interest and dividends. 2020 Top Income Tax Rates By State California tops the list with the highest tax rates in the country—its highest tax rate is a full 2.3% more than Hawaii, the runner-up for the highest tax … Preparing for retirement? Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don't have income tax. Good news! Alaska once had an income tax, but it was repealed in 1980. A myriad of taxes—property, license, state and local sales, property, inheritance, estate and excise taxes on gasoline—eat away at your disposable income. Here's a roundup of the highest and lowest taxes by state. These states have no income tax One way to do this is to live in a state that does not tax your income. Image source: Getty Images. And if you don't like the cold, you can simply use your tax savings to buy excellent heating equipment since Alaska doesn't have income tax. The state doesn’t have a sales tax either (though some localities do charge a sales tax). Most state governments in the United States collect a state income tax on all income earned within the state, which is different from and must be filed separately from the federal income tax. Although each of these states has their own reasons, the main answer is that the states have found better sources of income than income tax could bring in. If you're a resident of one of these states, you don't need to file a return in that state. Arizona, Colorado, Illinois, Indiana, Michigan, New Mexico, North Dakota, Ohio, Pennsylvania and Utah levy tax on income under 5%. Where you live can help or hinder your ability to make ends meet. The states with no income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Currently, nine states in the U.S. don’t tax wages, with two states (New Hampshire and Tennessee) phasing out all taxes on investment income and interest by the year 2025. This means that there are seven states that have no income tax whatsoever right now, and by 2021, an eighth state will be joining the ranks. Weighing the tax landscape against your financial picture lets you stretch your dollars. There are 11 states with no income tax for retirees. Several other states have a relatively low tax rate across all income levels. In addition, New Hampshire and Tennessee only tax interest and dividend income, not wages, earnings, or other income: New Hampshire residents only file a tax return if their interest and dividend income … Learn which states have the highest tax rates, no taxes, and flat taxes; and see a complete list of tax rates for every state in the union. On … States With No Income Taxes Alaska. State Income Tax. 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