Life after service · money

State income tax and where you establish residency

There is a list going around that ranks the states where income taxes are lowest. It is out of order, it leaves states out, and it carries no tax year. Here is the corrected version, and the part about military legal residence that the list never mentions.

The headline error, first. “Where income taxes are lowest” is not “where you pay less tax.” Those are two different questions and only one of them decides whether a move puts money back in your pocket.

Every figure here carries a tax year. Most are tax year 2026. State rates change every legislative session, so a rate table with no year on it goes stale every January. Verify with the state's own department of revenue before you act on any number, including mine.
Read this first

Your legal residence while you serve

This is the most valuable fact on the page, and the original list did not mention it.

Under 50 U.S.C. 4001(a)(1), military orders neither take away nor hand you a state of legal residence — they freeze the one you already have. The law's words: a service member “shall neither lose nor acquire a residence or domicile for purposes of taxation … by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders.” Under 4001(b), your military pay is not taxable by a state you are not a resident of.

So you keep your home state's domicile no matter where you are stationed. Changing your legal residence to a state with no income tax is possible — but it takes actually establishing domicile there. That means physical presence plus intent, normally shown by being stationed in that state and taking the ordinary steps: driver license, vehicle registration, voter registration, property.

You cannot simply pick a state you have never lived in. If you file a residency certificate naming Texas or Florida with no presence there and no intent, you have filed a false certificate, and your actual home state can still come after you for back tax, interest and penalties. The path that does work: establish domicile in the state for real — usually when orders put you there — then change it.
The change is recorded on DD Form 2058, the state of legal residence certificate, and you file it while you are still in the service. See your installation legal assistance office before you file it.
★ Set it before you separate.
Your spouse

The spouse has the same protection — and an election

For a two-income Family this is real money, and it is routinely missed.

  • 50 U.S.C. 4001(a)(2) protects a military spouse's domicile the same way it protects the service member's.
  • A spouse's wages earned at the duty station are not taxable there when the spouse is present solely because of the member's orders.
  • 50 U.S.C. 4001(a)(3) lets the service member and spouse jointly elect to use, for tax purposes, the member's residence, the spouse's residence, or the member's permanent duty station.
That election is a choice, and choices get made wrong when nobody explains them. Take it to legal assistance with both of your last tax returns in hand.
★ Two incomes, two states, one election.
Retiring

For a retiree, the rate may be the wrong number entirely

What matters is whether that state taxes your retired pay.

A state with a higher headline rate that exempts military retired pay can leave you with more money than a lower-rate state that taxes it in full. That one fact can reorder any “lowest tax states” list you will ever see.

I do not print a state's treatment of military retired pay unless I have it from that state's own department of revenue, and I do not have it for the states in my table. So here is the move instead.

Call the department of revenue in the state you are considering and ask one question: does this state tax military retirement pay — in full, in part, or not at all? Get that answer before you sign a lease, a contract or a job offer.
★ Ask about retired pay, not the rate.
The nine

States with no individual income tax

Alaska · Florida · Nevada · New Hampshire · South Dakota · Tennessee · Texas · Washington · Wyoming

Washington carries two catches. The Department of Revenue's own position is that Washington does not currently have an individual income tax. But Washington does levy a 7% tax on long-term capital gains — stocks, bonds, business interests, with real estate and retirement accounts exempt. And DOR states that a 9.9% income tax on individuals and joint filers earning over $1 million a year begins 1 January 2028, with the first returns due April 2029. Anyone telling you Washington is 0% forever is behind.
★ Zero on wages is not zero on everything.
The real question

A state with no income tax still has to fund itself

Seven of those nine get the money back another way.

Sales tax, property tax, excise tax, severance tax — the bill arrives, it just arrives with a different name on it. A veteran who relocates on the headline income tax rate alone can end up paying more, not less.

Before you move for taxes, add up the whole bill: state income tax, local income tax, sales tax, property tax on the house you would buy, vehicle taxes and registration, and how that state treats military retired pay. Compare totals, not headlines.
★ Compare the bill, not the rate.
How to read a rate

Flat, graduated, and the taxes underneath

Two states can print the same number and charge you completely different money.

  • A flat rate hits every taxable dollar you have.
  • A graduated rate is a set of bands. The number you usually see quoted is the top band, which most people never reach.
  • North Dakota's 2.50% only applies above roughly $245,000 of single income. On a normal salary a North Dakotan pays 0% on the first band and 1.95% above it — less than an Arizona resident paying 2.5% on every dollar. Ranked in one column, those two look backwards.
  • Local income taxes are on top. Indiana counties, Ohio cities and school districts, Pennsylvania municipalities and school districts, and Michigan cities all levy their own. The state figure is not what you pay.
★ That is why my table is alphabetical, not ranked.
What follows is not a ranking and not a complete list. The list that circulates online claims to be the 15 lowest. It is not — it leaves out states that charge less than states it prints, and it ranks flat rates against top-bracket rates as if they were the same thing. Below are the figures I could confirm on each state's own law or revenue department, in alphabetical order, each stamped with the tax year its own source supports. There are other states I could not confirm, and they are not printed here. Check your state yourself before you act.
StateWhat it chargesTax year of this figure
Arizona 2.5% flat, on every taxable dollar As published by the Arizona Department of Revenue
Colorado 4.40% flat. Colorado's rate is adjusted against TABOR surplus and has moved in both directions — it was 4.25% for tax year 2024. Confirm the current year before acting. 2025 and 2026
Indiana 2.95% flat, dropping to 2.90% in 2027. Indiana counties levy their own income tax on top, so a resident's real combined rate is higher than 2.95%. 2026
Iowa 3.8% flat on all taxable income (Iowa Code 422.5) Tax years beginning on or after 1 January 2025
Kentucky 4% for 2025; 3.5% for 2026 per the Department of Revenue's 2026 withholding formula. Heads up: the Department's general individual income tax page has not been updated off the 4% figure. Two official Kentucky pages disagree. Verify before you file. 2025 and 2026, both shown
Louisiana 3% flat Tax periods beginning on or after 1 January 2025
Michigan 4.25% flat. Michigan cities levy their own income tax on top. 2026
Mississippi 0% on the first $10,000, then 4.0% above that. Was 4.4% for 2025 and drops to 3.75% for 2027. 2026
North Carolina 3.99% flat. It was 4.25% in 2025 — this is one of the entries that goes wrong on any undated list. 2026
North Dakota Graduated: 0% on the first $48,475 single / $80,975 married filing jointly; 1.95% on the band above that; 2.50% only on income over $244,825 single / $298,075 married filing jointly. 2025. The Office of State Tax Commissioner has not published a 2026 schedule, and the thresholds are indexed every year, so the 2026 numbers will not be these.
Ohio 0% on the first $26,050, then 2.75% above that, per Ohio Revised Code 5747.02. Ohio's top rate was 3.125% in 2025. Ohio cities and school districts levy their own income taxes on top. Taxable years beginning in 2026 and thereafter, per the statute. The Department of Taxation's rate tables currently publish through 2025 only.
Pennsylvania 3.07% flat. Pennsylvania municipalities and school districts levy their own income taxes on top. As published by the Pennsylvania Department of Revenue
Where the circulating list is broken, in plain terms. It puts Pennsylvania at 3.07% above Indiana at 2.95%, and Michigan at 4.25% above both Ohio and Colorado. It prints no tax year, which already makes three of its entries wrong for 2026. It leaves out states that charge less than states it lists. And it measures one tax only. I am not rebuilding it as a ranking, because a ranking is the thing that misleads people into moving.