ENJOY THE PERKS OF STATES WITH NO INCOME TAX EVEN IF YOU’RE NO LONGER THERE
By Buddy Blouin
The United States is a beautiful, diverse country, but during tax season, this can just mean more headaches. There are a lot of things to consider, and during this time, living in states with no income tax can be desirable for many families. For the military community, the opportunity of doing so may be opening up with more options, and you won’t even need to move to enjoy it. We’re proud to provide you with such information, but always speak with a financial advisor or professional before making any decisions. Here’s what you need to know about states with no income tax and how the military community may be able to take advantage of them.
Read next:Military Taxes Demystified: Preparing to File the Right Way
What Are the States With No Income Tax?Alaska, Florida, Nevada, South Dakota, Texas, Tennessee, Washington, and Wyoming are the eight states with no income tax, while New Hampshire refrains from such taxes on a partial basis. In NH, state income taxes on dividends and interest income are still necessary. For members of the military, specifically those near or entering retirement, it’s important to understand which states have no income tax. However, new legislation may be offering military families facing such retirement situations more options than ever before.
New Residency Law for Veterans and Military MembersThe Veterans Auto and Education Improvement Act of 2022 is now law and is providing amendments to how tax residency works according to the Servicemembers Civil Relief Act. This law helps protect the military community with a focus on their finances and legal issues regarding them. There is a lot of discrepancy among professionals and agencies as to when, how, and what the law is providing. Nevertheless, it’s something to pay attention to. It’s also a prominent example of the complexity of tax laws and the importance of working with a professional. How it works is that it will allow more options to service members and their spouses when it comes to paying income taxes by expanding residency protection for service members even after they no longer physically live in a state. Again, the scenarios that can occur are still working themselves out, but theoretically, if someone was stationed in a state with no income tax or lower rates, there could be an opportunity to legally use this to enjoy a lower tax bill. According to Section 18 of the law, "A spouse of a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the spouse by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember's military orders." "For any taxable year of the marriage, a servicemember and the spouse of such servicemember may elect to use for purposes of taxation, regardless of the date on which the marriage of the servicemember and the spouse occurred, any of the following: (A) The residence or domicile of the servicemember. (B) The residence or domicile of the spouse. (C) The permanent duty station of the servicemember." Before any tax decisions are made, again, talk to your financial professional. We are here to help you in many ways, but tax experts have honed their craft and can be a valuable resource.
States That Don’t Tax Military RetirementThere are several states with no retirement income tax for Veterans. It’s a great benefit for a community that has sacrificed to ensure a safer world for Americans. Understanding which states provide this perk can be a huge deal for Veterans looking to save on taxes. Here are the states that don’t tax military retirement:
- New Jersey
- New York
- North Dakota
- West Virginia
- New Mexico
- North Carolina
- Rhode Island
- South Carolina
- The District of Columbia
Are States With No Income Tax Better?"Better" is a very subjective word. It’s not about better, per se, but rather about being different. On a personal level, many residents of states with no income tax enjoy retaining more of their income, but that doesn’t mean there aren’t trade-offs. For example, Texas is a state with no income tax and no sales tax on food at grocery stores, but it also has some of the highest property tax rates in the country. If you dig further, you can find other states in similar situations. Better? Hard to say, but it may be better for your lifestyle.
How Do States With No Income Tax Make Money?States with no income tax are still out to generate revenue and do so through other forms of taxes. This may be through increased property tax rates, higher sales taxes, elevated fuel taxes, etc. When making any financial decision with taxes or anything else that affects your money, take your time, speak with a professional, and make a decision that works best for you.
Suggested read:New 2023 MilTax Software Makes Filing Taxes Easier for Military Members
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