Nine states have no income tax at all
Nine U.S. states collect no income tax from residents: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception—it taxes only dividend and interest income, not wages—but residents pay no tax on salary or wages.
These states fund their operations through other revenue sources: sales tax, property tax, corporate tax, excise taxes on fuel and alcohol, and fees. The mix varies by state. Some rely heavily on sales tax, which means you pay more at the register. Others depend more on property tax, which affects homeowners differently than renters.
If you are considering a move to one of these states or already live in one, understanding how the tax system works there matters more than the headline number. No income tax does not automatically mean lower overall taxes.
Key Takeaways
- Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only).
- States without income tax typically charge higher sales tax, property tax, or both to fund schools, roads, and services.
- Your total tax burden depends on where you spend money and what you own, not just whether income tax exists.
- If you move to a no-income-tax state, you may still owe income tax to your previous state for part of the year.
- Retirement income—Social Security, pensions, 401(k) withdrawals—is treated differently in each state and may be taxed even in no-income-tax states.
How states without income tax replace that revenue
A state cannot run schools, maintain highways, and fund law enforcement without money. States without income tax shift the burden to other sources. The most common is sales tax, which you pay when you buy goods and services. Texas, Washington, and Tennessee all have sales tax rates above 8 percent. Alaska has no state sales tax but allows municipalities to impose local sales tax.
Property tax is another major source. New Hampshire, which has no income tax and no sales tax, relies heavily on property tax—among the highest in the nation. If you own a home there, your annual property tax bill reflects this. Florida and Texas have lower property tax rates than New Hampshire but still use property tax as a significant revenue source.
States also collect corporate income tax, excise taxes on gasoline and cigarettes, licensing fees, and gambling revenue. Nevada's economy benefits from casino taxes. Alaska receives substantial revenue from oil production taxes. These sources do not affect every resident equally—a person who does not own property, does not smoke, and does not gamble will pay less through these channels than someone who does.
Comparing your actual tax burden across states
Moving to a no-income-tax state does not may provide you will pay less in total taxes. A person earning $60,000 per year might pay less in Texas (no income tax, moderate sales and property tax) than in a high-income-tax state like California. But a retiree living on investment income might pay more in New Hampshire (no income tax, very high property tax) than in a state with moderate income tax and lower property tax.
The calculation depends on your specific situation: your income level, whether you own property, how much you spend on taxed goods, and what type of income you receive. A family renting an apartment and earning wages will feel the impact of sales tax more than property tax. A homeowner will feel property tax more acutely. Someone with significant investment income needs to know how each state treats dividends and capital gains.
If you are considering a move, compare the total tax burden in your current state and your target state using your own numbers, not averages. Many state tax websites offer calculators, though they vary in accuracy.
What happens to your taxes if you move mid-year
If you move from a state with income tax to a no-income-tax state (or vice versa) partway through the year, you will likely owe income tax to both states for the portion of the year you lived there. Your previous state considers you a resident for the months you lived there. Your new state may also claim you as a resident once you establish residency, which typically happens when you obtain a driver's license, register to vote, or sign a lease.
You file a part-year resident return in each state, reporting only the income earned while you lived there. Some states offer credits to prevent double taxation, but not all do. If you moved in June, for example, you would report January-through-June income to your old state and July-through-December income to your new state. Keep documentation of your move date—a lease, utility bill, or driver's license renewal—to support your residency claim.
How retirement income is taxed in no-income-tax states
Even in states with no income tax, retirement income is sometimes taxed. Social Security benefits are not taxed in any state. However, 401(k) withdrawals, IRA distributions, and pension income are treated differently depending on the state.
Tennessee and New Hampshire tax dividend and interest income but not wages or retirement distributions. Texas, Florida, Nevada, Washington, Wyoming, Alaska, and South Dakota tax none of these. The distinction matters if you are planning retirement and considering where to live. A person with a large pension might benefit from moving to Texas or Florida, where pension income is not taxed. Someone relying on investment income might find Tennessee or New Hampshire less advantageous.
Before you retire or make a major move, check the specific rules for retirement income in your target state. State tax law changes, and what applies today may not explore in five years.
States that tax only investment income, not wages
New Hampshire is the only state that taxes investment income (dividends and interest) but not wages or salaries. This makes it unusual. If you earn $80,000 in wages, you owe no state income tax. If you earn $5,000 in dividend income, you do owe tax on it.
Tennessee also taxes investment income but not wages, though Tennessee's tax applies only to dividends and interest earned before 2022. Starting in 2022, Tennessee began phasing out this tax, and it is scheduled to disappear entirely by 2026. If you live in Tennessee now, check the current rules before assuming you will owe tax on investment income.
These partial taxes affect people differently. A wage earner with no investments benefits fully. A retiree living on dividends and interest faces a tax bill. Understanding your own income sources is essential before you move.
How to verify residency and avoid tax disputes
If you move to a no-income-tax state, document your residency change. States use several factors to determine where you are a resident for tax purposes: driver's license address, voter registration, property ownership, lease agreements, and the location where you spend most of your time. If you move but keep a home in your old state, you risk being claimed as a resident by both states.
Update your driver's license and voter registration as soon as you move. If you own property in multiple states, be prepared to explain to tax authorities why you are a resident of one and not the other. Keep utility bills, lease agreements, and other documents that show where you actually live. If a state audits your return and questions your residency, these documents are your evidence.
Some people maintain a second home in a no-income-tax state while working in a high-income-tax state. This is legal, but it requires careful documentation. You cannot straightforward claim residency in the no-income-tax state to avoid taxes if you actually spend most of your time elsewhere. Tax authorities look at facts, not intentions.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
Yes. You must establish residency in the state, which typically requires a driver's license, voter registration, or a lease. You cannot claim residency in a state where you do not actually live. If you work in a high-income-tax state but live in a no-income-tax state, you may owe tax to both states depending on where your employer is located and your state's rules.
Is Social Security taxed in states with no income tax?
No. Social Security benefits are not taxed by any state, including the nine with no income tax. However, other retirement income like 401(k) withdrawals and pensions may be taxed depending on the state. Check your specific state's rules on retirement distributions.
What if I own property in a no-income-tax state but live somewhere else?
You will owe property tax on that property to the no-income-tax state, but you remain a resident of the state where you actually live for income tax purposes. You will owe income tax to your home state. Owning property does not change your residency status for income tax.
Can I move to a no-income-tax state just to reduce my taxes?
You can move for any reason, including tax considerations. However, the move must be genuine. You must actually live in the new state, not straightforward claim residency to avoid taxes. If you move but spend most of your time in your old state, tax authorities may challenge your residency claim and assess back taxes plus penalties.
Do no-income-tax states have higher sales tax?
Generally, yes. States without income tax tend to have higher sales tax or property tax to fund services. However, the relationship is not automatic. Alaska has no state income tax and no state sales tax but allows local sales tax. Compare the total tax burden in your specific situation rather than assuming one tax type replaces another equally.