Getting the Most out of Life
Texas Has No State Income Tax, and Millenials Use That to Their Advantage
Retirement-bound Baby Boomers and wealthy individuals looking to protect their assets from Uncle Sam are the two groups most often associated with benefiting from communities with no state income tax. But what many people don’t realize? Millennials, too, will earn perks early in their careers and adult lives from living in these same areas.
Where Are These Magical, Low-Tax Lands?
There are seven states across the nation whose residents benefit from having no state income tax, and two others that charge very minimal income taxes. The seven states with no income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tennessee collects tax only on interest from investments such as bonds, notes, and dividends that exceed $1,250 for single filers ($2,500 for joint filers). New Hampshire collects tax on interest and dividend income exceeding $2,400 for single filers ($4,800 for joint filers).
Let’s take a look at some early-in-life success stories from Millennials living in Texas.
Buying a Home Is Easier
“The lack of state income tax was instrumental in our ability to buy a house and pay down debt,” says Brian, founder of Debtless In Texas. “In fact, we were able to buy our dream home because that extra income stayed with us.”
Brian is a partially disabled veteran. Thanks to the Texas Veterans Land Board, he and his wife were able to get a 30-year fixed VA mortgage at 2.58 percent with zero down and no private mortgage insurance (PMI).
“Texas is veteran friendly and provides various tax breaks and incentives for veterans and disabled veterans,” Brian explains.
There Are Job-Related Advantages
“Working in the nonprofit world, the break of no state income tax is incredibly helpful when it comes to my salary,” says Mary Burke, a 26-year-old outreach coordinator at the Old Jail Art Center in Albany, Texas. “I will use this as bargaining chip when it comes to salary negotiations in another state.”
Her husband, Anthony, 25, works as a freelancer for a growing startup. Freelancers need to save a portion of their salaries to pay quarterly estimated taxes. Not having to factor in the state income tax reduces the hassle this requirement creates for the couple.
Does Paying No State Income Tax Have Downsides?
When a state doesn’t charge income tax, the money still has to come from somewhere. This can lead to higher property, sales, and corporate taxes.
Mary explains that no state income tax translates to transparent municipal expenditures and local taxes that are kept within the community. But that this may also result in what some see as peculiar spending.
“Local taxes, whether they’re high or low, support the independent school districts, roads, and infrastructure of the towns,” she says. “So if you live in town where road conditions aren’t priority, don’t expect those potholes to get filled. But if everyone loves football? Get ready to see a new field house and multimillion-dollar stadium up at the school.”
Brian concurs that the downside is a tight budget for roads and infrastructure, which means the Texas Department of Transportation contracts with outside companies who establish tolls.
Would These Millennials Move to a State with Income Tax?
Mary says she’d be willing to move to a state with income tax if it suited Anthony’s and her careers and future plans.
Brian, however, is hesitant to leave the tax break the Lone Star State affords him. “I have traveled around the country and lived in other states and can’t see myself being happy anywhere else, especially if they have a state income tax,” he says.