State Income Tax Cuts: Where is it Cheapest to Live?
The shift to remote work has completely changed how we choose where to settle down. Instead of being tied to an expensive coastal city, you can now pack up your laptop and move to a state that lets you keep more of your paycheck. Several states are aggressively cutting income taxes specifically to attract out-of-state remote workers.
The Push for Flat Rates and Zero Income Tax
Over the last three years, state legislatures across the country have realized that remote workers are incredibly mobile. If a software developer earning $120,000 a year can live anywhere, they will likely choose a location that respects their hard-earned money. This realization has sparked a highly competitive race to the bottom for state income tax rates.
Currently, nine states charge zero state income tax on earned wages. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
While moving to a zero-tax state like Florida or Texas sounds great on paper, these housing markets have become incredibly expensive due to high demand. Because of this, financial experts are pointing remote workers toward a different group of states. These are the aggressive tax cutters in the Midwest and South that still offer affordable housing alongside shrinking tax bills.
States Aggressively Slashing Income Taxes
If you want to stretch your dollar further, you need to look at states that are actively rewriting their tax codes. Here are the states making the biggest moves right now.
Kentucky
Kentucky is on a mission to completely eliminate its individual income tax. In 2022, the state passed House Bill 8, which created a specific formula to reduce the income tax rate by half a percent at a time as long as state revenues hit certain targets.
At the start of 2023, Kentucky dropped its flat tax rate from 5% to 4.5%. On January 1, 2024, that rate dropped again to exactly 4.0%. State lawmakers have openly stated their goal is to reach 0% within the next decade to compete directly with states like Tennessee. For a remote worker earning $90,000, that recent 1% drop translates to $900 in extra cash every single year.
Arkansas
Arkansas has been aggressively slashing taxes over the last few years under Governor Sarah Huckabee Sanders. In late 2023, the state passed legislation to lower the top individual income tax rate from 4.7% to 4.4%.
They did not stop there. During a special legislative session in June 2024, Arkansas cut the top individual income tax rate again down to 3.9%. This makes Arkansas a highly attractive option for high-earning remote workers who want cheap real estate in the Ozarks combined with a very low tax burden.
Indiana
Indiana is another state steadily reducing the burden on workers. The state currently uses a flat income tax system. In 2023, they passed legislation to accelerate their planned tax cuts.
For the 2024 tax year, the Indiana income tax rate dropped to 3.05%. Under the current legal framework, this rate will continue to drop slightly every year until it hits a flat 2.9% in 2027. Combined with a very low cost of living in cities like Indianapolis and Fort Wayne, Indiana is becoming a top destination for remote tech and finance workers.
North Carolina
North Carolina is booming, and its tax policy is a major reason why. The state has been lowering its flat personal income tax rate for several years. In 2024, the rate sits at 4.25%.
According to the state budget passed recently, North Carolina will continue to reduce this rate until it reaches a flat 3.99% by 2026. Furthermore, North Carolina is actively reducing its corporate income tax rate with plans to drop it to 0% by 2030. This makes it a perfect hub for self-employed remote workers or those looking to start their own LLCs.
States Paying You Directly to Move
While tax cuts are great, some states are combining low tax burdens with actual cash incentives to get you to cross their borders.
- Oklahoma: The state offers a relatively low top income tax rate of 4.75%. However, the city of Tulsa runs the famous “Tulsa Remote” program. If you are a fully remote worker and agree to move to Tulsa for one year, the program will hand you a $10,000 grant to help with relocation expenses.
- West Virginia: West Virginia recently cut its top personal income tax rate from 6.5% down to 5.12%. Alongside this tax cut, the state runs the “Ascend WV” program. This program pays remote workers $12,000 to move to participating mountain towns. The state also throws in free outdoor recreation gear rentals and access to co-working spaces.
The Hidden Costs: Look at the Total Tax Burden
Before you pack up your car and move to a low-tax state, you must look at the overall tax picture. States still need to fund schools, roads, and emergency services. If they are not collecting the money through income taxes, they are getting it somewhere else.
Texas has zero income tax, but it boasts some of the highest property taxes in the nation. The average effective property tax rate in Texas is around 1.60%, which can easily result in an $8,000 annual property tax bill on a modest $500,000 home.
Tennessee also has zero income tax, but it relies heavily on sales taxes to fund the government. The state sales tax is 7%, and local municipalities can add up to 2.75% on top of that. This means you could pay up to 9.75% in total sales tax every time you buy a TV, a car, or even a meal at a restaurant.
When searching for the cheapest place to live, always calculate the combined total of income tax, property tax, and sales tax based on your personal spending habits.
Frequently Asked Questions
If I work remotely, do I pay taxes in the state I live in or the state my company is in?
In most cases, you pay income tax to the state where you physically perform the work. If your company is in California but you work from your living room in Indiana, you will pay Indiana state income taxes. However, you must watch out for the “Convenience of the Employer” rule.
What is the Convenience of the Employer rule?
A handful of states (most notably New York and Pennsylvania) enforce this rule. If your company is based in New York and you choose to work remotely in Florida simply for your own convenience, New York will still demand state income taxes from your paycheck. You must carefully check your employer’s tax withholding policies if their headquarters is in one of these states.
Which state is currently the absolute cheapest for taxes?
If you factor in income, property, and sales tax, Alaska generally has the lowest total tax burden in the United States. Alaska charges no state income tax and no state sales tax. Wyoming is a close second, offering no income tax and very low property taxes.
Are state income tax cuts permanent?
No tax law is truly permanent. While states like Kentucky and North Carolina have legally mapped out tax reductions for the next five to ten years, future politicians can pass new laws to freeze or reverse those cuts if the state runs out of money.