15 States That Don't Tax Unemployment Benefits
If you're out of work right now, you're probably saving every quarter you can. Not having to pay state income taxes on unemployment compensation will certainly help with that effort.
The federal government taxes unemployment compensation as if the payments were wages. That, on its own, can be a gut punch for someone who is out of work. But there's also a double whammy for most of these people—the majority of states follow suit and fully tax unemployment benefits, too.
Fortunately, though, there are a handful of states that don't tax unemployment benefits at all. In some cases, it's because there's no income tax in the state. For other states, it's because a policy decision was made to ease up on residents who are down on their luck. If you're one of the millions of Americans suddenly out of work because of the coronavirus crisis, you're probably saving every quarter you can—and not having to pay state income taxes on your benefits is a blessing. Read on to see if your state is one of the 15 that doesn't tax unemployment compensation. We also outline each state's income, sales, and property tax levels—and provide a link to the state's full tax profile—so you can get a sense of the overall tax burden where you live.
Alabama
State Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for single filers). High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for single filers). Alabama also allows residents to deduct all their federal income tax (not including certain federal tax credits) from state taxable income. Some cities impose a "municipal occupational tax" of 0.5% to 2% on income paid to workers.
Note that, in addition to not taxing unemployment benefits, Alabama does not tax the first $25,000 received from an employer as severance pay, unemployment compensation, and the like as a result of "administrative downsizing."
Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%. Alabama is one of the few states that does not exempt food from sales tax.
Property Taxes: The median property tax rate in Alabama is $417 per $100,000 of assessed home value.
Alaska
State Income Tax Range: There is no state income tax in Alaska.
Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can go as high as 7.5%. But, according to the Tax Foundation, the statewide average is only 1.76%.
Property Taxes: In Alaska, the median property tax rate is $1,183 per $100,000 of assessed home value.
Go to Alaska's Full State Profile
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California
State Income Tax Range: Low: 1% (on up to $17,618 of taxable income for married joint filers and up to $8,809 for single filers). High: 13.3% (on more than $1,181,484 of taxable income for married joint filers and $1 million for single filers).
Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.66%, according to the Tax Foundation.
Property Taxes: In California, the median property tax rate is $760 per $100,000 of assessed home value.
Florida
State Income Tax Range: Florida does not have a state income tax.
Sales Tax: 6% state levy. Localities can add as much as 2.5%, and the average combined rate is 7.05%, according to the Tax Foundation.
Property Taxes: In Florida, the median property tax rate is $928 for every $100,000 of assessed home value.
Montana
State Income Tax Range: Low: 1% (on up to $3,100 of taxable income); High: 6.9% (on more than $18,400 of taxable income). Montana permits filers to deduct some of their federal income tax.
Sales Tax: No state sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.
Property Taxes: For homeowners in Montana, the median property tax rate is $836 for every $100,000 of assessed home value.
Nevada
State Income Tax Range: There is no state income tax in Nevada.
Sales Tax: 6.85% state levy. Localities can add as much as 1.65%, and the average combined rate is 8.32%, according to the Tax Foundation.
Property Taxes: Nevada's median property tax rate is $636 per $100,000 of assessed home value.
New Hampshire
State Income Tax Range: New Hampshire doesn't have an income tax. But there is a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers).
Sales Tax: No sales tax.
Property Taxes: The median property tax rate in New Hampshire is $2,195 for every $100,000 of assessed home value.
New Jersey
State Income Tax Range: Low: 1.4% (on up to $20,000 of taxable income). High: 10.75% (on more than $500,000 of taxable income). The City of Newark also imposes a 1% payroll tax.
Sales Tax: 6.625% state levy. That rate is cut in half (3.313%) for in-person sales in designated Urban Enterprise Zones located in disadvantaged areas. Salem County, which borders no-tax Delaware, also charges the reduced 3.3125% rate. Notably, motor vehicles are charged at the regular rate in these locations. Most clothing and footwear are tax-exempt year-round throughout the state.
Property Taxes: In New Jersey, the median property tax rate is $2,471 per $100,000 of assessed home value.
Pennsylvania
State Income Tax Range: Pennsylvania has a flat rate of 3.07%. Plus, nearly 3,000 local jurisdictions in the state impose additional income taxes.
Sales Tax: 6%, but food, clothing, textbooks, heating fuels, and prescription and nonprescription drugs are exempt. Philadelphia has a local sales tax of an additional 2%, and Allegheny County (Pittsburgh's home county) adds a local sales tax of 1%, bringing the population-weighted average to 6.34%, as measured by the Tax Foundation.
Property Taxes: In Pennsylvania, the median property tax rate is $1,589 for every $100,000 of assessed home value.
South Dakota
State Income Tax Range: South Dakota does not impose a state income tax.
Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.4%, according to the Tax Foundation. Many services are taxed, as are groceries.
Property Taxes: The median property tax rate in South Dakota is $1,321 per $100,000 of assessed home value.
Tennessee
State Income Tax Range: There's no state income tax, so salaries, wages, Social Security benefits, IRA distributions and pension income are not taxed. But Tennessee does have the Hall Tax, which taxes dividends and some interest at 1% for 2020 (2% for 2019). The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. The tax is eliminated after 2020.
Sales Tax: 7% state levy. Localities can add up to 2.75%, with an average combined rate of 9.53%, according to the Tax Foundation. Groceries are taxed at 4% by the state, plus whatever local rate is in effect. Local taxes are limited, though: Only the first $1,600 of any item is taxable.
Property Taxes: The median property tax rate for Tennessee homeowners is $727 per $100,000 of assessed home value.
Texas
State Income Tax Range: Texas has no state income tax.
Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.19%, according to the Tax Foundation.
Property Taxes: The median property tax rate in Texas is $1,807 per $100,000 of assessed home value.
Virginia
State Income Tax Range: Low: 2% (on up to $3,000 of taxable income). High: 5.75% (on more than $17,000 of taxable income).
Sales Tax: 5.3% state levy, including 1% that is allocated to local governments. Certain areas in Northern Virginia and the Hampton Roads area have an additional 0.7% sales tax. There's also an additional 1.7% tax in Williamsburg, James City County and York County. That gives the state an average combined rate of 5.65%, according to the Tax Foundation. Groceries are taxed at 2.5% statewide.
Property Taxes: In Virginia, the median property tax rate is $814 per $100,000 of assessed home value.
Washington
State Income Tax Range: Washington has no state income tax.
Sales Tax: 6.5% state levy. Municipalities can add up to 4% to that, with the average combined rate at 9.21%, according to the Tax Foundation.
Property Taxes: The Washington median property tax rate is $1,008 for every $100,000 of assessed home value.
Wyoming
State Income Tax Range: There is no state income tax in Wyoming.
Sales Tax: 4% state levy. Municipalities can add up to 2% to that, with a combined rate of 5.34%, according to the Tax Foundation.
Property Taxes: In Wyoming, the median property tax rate is $609 per $100,000 of assessed home value.
