How to Calculate How Much You Save by Moving to a No Income Tax State

Key Takeaways

Nine states levy zero state income tax, but three of them tax dividend and interest income, which matters significantly for investors.
High earners who relocate without adjusting for local income taxes routinely overestimate savings by 30% to 60%, sometimes by tens of thousands of dollars per year.
The correct method subtracts your destination state's effective total tax burden, including local and property taxes, from your origin state's effective total tax burden, then nets out cost-of-living differences.
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The Nine No-Income-Tax States Are Not Created Equal

Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, and New Hampshire all impose zero state income tax on wages. That list ends the similarity. Tennessee and New Hampshire historically taxed investment income, and New Hampshire's dividend and interest tax phased out completely only in 2025. Washington state enacted a 7% capital gains tax in 2023 on long-term gains above $262,000. Alaska has no statewide sales tax but allows local jurisdictions to collect up to 7.5%. A physician earning $400,000 in wages who moves from California to Washington gains a full state income tax exemption on earned income but may owe Washington's capital gains tax on any brokerage account sales above the $262,000 threshold.

The correct first step is identifying which income types each state taxes, not just whether the state has a headline income tax rate of zero.

Step One: Calculate Your Current State's Effective Rate on Your Specific Income

Your marginal rate is not your effective rate. California's 13.3% top marginal rate applies only to income above $1,000,000. A California resident earning $275,000 in W-2 wages faces an effective state income tax rate of approximately 8.6% after the standard deduction, generating a state tax liability near $23,650.

The formula is straightforward:

Effective State Rate = (Total State Income Tax Owed) / (Gross Adjusted Gross Income)

Use your most recent California Form 540 line 31 (tax before credits) divided by your federal AGI from IRS Form 1040 line 11. That ratio is your true baseline. Do not use the marginal rate. It overstates your savings by a material amount in almost every scenario.

Step Two: Identify the Destination State's Full Tax Profile

No income tax does not mean no taxes. Texas funds its government primarily through property taxes averaging 1.74% of assessed value statewide, among the highest rates in the country. A $900,000 home in Austin carries an annual property tax bill near $15,660. Florida's average effective property tax rate is 0.86%, meaning the same home generates roughly $7,740 annually. Nevada sits at approximately 0.59%.

Add local income taxes where they apply. Some counties and municipalities in states without a state income tax still impose local levies. Portland, Oregon is a common example in the opposite direction, with its Multnomah County income tax layered on top of Oregon's state tax, but the principle applies anywhere.

Build a destination tax profile with four components:

State income tax on wages: $0 for all nine states on earned income
State capital gains treatment: Washington taxes long-term gains above $262,000 at 7%
State sales tax rate: Washington's combined average is 9.29%, Nevada's is 8.23%, Texas's is 8.19%
Annual property tax on your anticipated home value

Worked Example One: California to Florida on $350,000 W-2 Income

A married couple filing jointly earns $350,000 in W-2 wages and $40,000 in long-term capital gains. They own a $1,200,000 home.

In California:

State income tax on $350,000 W-2: approximately $26,300
State income tax on $40,000 LTCG (taxed as ordinary income in California): approximately $4,120
Property tax at 1.05% effective rate on $1,200,000: $12,600
California total: $43,020

In Florida:

State income tax on W-2: $0
State income tax on LTCG: $0
Property tax at 0.86% effective rate on $1,200,000: $10,320
Florida total: $10,320

Gross annual state-level savings: $32,700

That figure is before cost-of-living adjustments and before the federal offset. At about $390,000 of MAGI this couple gets the full 2026 SALT cap of $40,400, so in California they deduct $40,400 of their $43,020 SALT bill, versus $10,320 in Florida. Losing that $30,080 deduction gives back part of the savings at their federal marginal rate.

Worked Example Two: New York to Texas on $500,000 W-2 Income

A single filer earns $500,000 in New York City. Combined New York State and New York City income taxes at this income level reach approximately $47,800 per year. The filer rents in NYC and would purchase a $750,000 home in Dallas.

In New York City:

Combined state and city income tax: $47,800
Rent: no property tax exposure directly

In Texas:

State income tax: $0
Property tax on $750,000 Dallas-area home at 1.74% effective rate: $13,050

Gross annual tax savings: $47,800 minus $13,050 = $34,750

A naive analysis would report $47,800 in savings. The correct figure is $34,750 because Texas's property tax obligation is a real recurring cost the New York City renter was not paying. The mistake of ignoring property taxes costs this filer $13,050 in accuracy every year they use the wrong number for planning.

Step Three: Apply a Cost-of-Living Adjustment

State tax savings evaporate partially or fully if the destination city costs more in daily expenditures. The Bureau of Economic Analysis Regional Price Parities index provides state-level cost comparisons. In 2023, California's regional price parity was 113.1, meaning goods and services cost 13.1% more than the national average. Florida's was 100.7 and Texas's was 96.3.

A household spending $120,000 annually on non-housing expenses in California would spend approximately $102,100 on the same basket in Texas, a savings of $17,900. That amount adds to the tax calculation, but only if the move is genuine and full-year.

Step Four: Account for Federal Deductibility Under SALT Limits

The One Big Beautiful Bill Act set the cap on the state and local tax deduction on IRS Schedule A at $40,400 for 2026. It shrinks by 30% of MAGI above $505,000 and bottoms out at $10,000 above $606,333. Filers past that point already get no federal deduction for state taxes above $10,000, so eliminating $40,000 in state income tax produces little or no secondary federal deduction loss, and the gross savings number mostly stands. Filers below $505,000 who itemize can deduct up to $40,400, so they should reduce their savings estimate by their marginal federal rate applied to the deduction they lose.

The Number You Need Before Signing a Lease or Listing Your Home

A back-of-envelope estimate of state income tax savings is not a financial plan. The real calculation requires your effective state rate on each income type, the destination state's full tax profile across income, sales, and property taxes, a cost-of-living differential, and a SALT cap adjustment. Skipping any of those components produces a savings figure that can be off by $10,000 to $30,000 annually at income levels above $250,000.

Use the CalcMoney income tax calculator to run your specific numbers across states. Enter your income by type, your expected home value in the destination, and your filing status. The calculator returns a side-by-side effective rate comparison that accounts for these variables, giving you a defensible number to bring to your CPA or financial planner before making a decision of this magnitude.

Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.

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