This post is adapted from a recent episode of the Scholar Financial Advising podcast. Listen here for the full discussion.
A listener asked:
“We’re considering relocating to a no income tax state. What should we evaluate beyond just taxes?”
This is a great question—and one that deserves a closer look. While the idea of moving to a state with no income tax can sound like a smart financial move, there’s more to the story. Not all no-tax states are created equal, and the long-term financial and personal implications can vary significantly.
No Income Tax Doesn’t Mean No Taxes
The biggest thing people tend to overlook is state estate tax. For example, moving to Texas means no state income tax and no estate tax—a popular combination. But if you’re looking at Washington state, it’s a different story.
Washington has no income tax but imposes a state estate tax starting at just $3 million. That tax can climb as high as 35 percent on larger estates. So while you’re saving annually on income tax, you could be looking at a significant estate tax bill down the road. This catches many people off guard.
Watch Out for Hidden Costs
Taxes are not limited to income. Here are other areas where no-income-tax states may make up the difference:
1. Property Taxes
Take New Hampshire as an example. There’s no state income tax or sales tax, which sounds great—until you look at property taxes, which are among the highest in the country. This is how the state funds services like schools, since they aren’t funded at the state level.
2. Sales Tax
If you have high ongoing expenses or expect large future purchases, a high sales tax rate could outweigh the income tax savings.
3. Cost of Living
Florida is a popular no-income-tax destination, but home prices have soared in recent years. The cost of housing alone can offset much of the tax savings.
4. Homeownership Costs
General maintenance and insurance costs can vary dramatically by region. These ongoing expenses should be part of your evaluation.
Don’t Forget the Lifestyle Factor
While taxes matter, they aren’t everything. People often focus only on financial outcomes when choosing a state—but quality of life is just as important.
We’ve seen situations where someone relocates for tax benefits and quickly realizes the new location doesn’t work for them. Maybe they’re far from family, friends, or the hobbies they love. Maybe it just doesn’t feel like home.
Those personal factors can outweigh any financial benefit, especially if the move feels isolating or inconvenient.
Final Thoughts
No-income-tax states can offer great opportunities—but only if you evaluate the full picture. Before making a move, ask yourself:
- What’s the state’s estate tax policy?
- Are property or sales taxes significantly higher?
- How does the cost of living compare?
- Will this place actually feel like home?
Some high-income-tax states may be worth avoiding, but choosing a no-tax state without digging into the details can backfire. The goal is not just to minimize taxes, but to make a move that’s financially smart and personally sustainable.
To hear the full breakdown, listen to the podcast episode here.