Nine states have no income tax at all

Nine states do not tax your wages, retirement income, or investment gains: 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 most people moving there for tax reasons are thinking about the other eight.

These states fund government services through sales tax, property tax, and business taxes instead. That means you pay no state income tax no matter how much you earn, but you may pay more in other taxes depending on where you live and what you buy.

If you live in one of these states, you still file federal income tax. State income tax and federal income tax are separate. Moving to a no-income-tax state does not change what you owe the federal government.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages or investment income; New Hampshire taxes only dividends and interest.
  • No-income-tax states typically charge higher sales tax and property tax to fund schools and services.
  • If you move to a no-income-tax state, you still file federal income tax returns and owe federal tax on your income.
  • Retirement income, Social Security, and pensions are not taxed in these states, which matters if you are planning for retirement.

How no-income-tax states replace that revenue

A state that does not tax income has to collect money another way. Most no-income-tax states rely heavily on sales tax—the tax you pay at checkout. Tennessee, Washington, and Texas have some of the highest sales tax rates in the country, sometimes 8 to 10 percent when you add local taxes on top of the state rate.

Property tax is another major source. Alaska and Wyoming have lower property taxes, which is one reason they attract residents. Florida and Texas also have no property tax on your home in some cases, though local taxes vary. South Dakota and Nevada use a mix of sales tax and property tax.

These states also tax businesses more heavily than income-tax states do. They may charge higher corporate income tax, franchise taxes, or licensing fees. If you own a business, you should research the specific state's rules before moving.

Retirement income and pensions in no-income-tax states

If you are retired or planning to retire, a no-income-tax state can save you money. Social Security benefits are not taxed in any of these nine states. Pensions and retirement account withdrawals—including 401(k) and IRA distributions—are also not taxed at the state level.

In contrast, some states with income tax do tax pensions or retirement withdrawals, even if they tax wages at a lower rate. If you are living on retirement income rather than wages, moving to a no-income-tax state can mean a real difference in what you keep.

However, you still owe federal tax on retirement income. The federal government taxes Social Security benefits for higher-income retirees, and it taxes 401(k) and IRA withdrawals as ordinary income. Moving to Alaska or Florida does not change that.

States with low income tax but not zero

If you are comparing states, know that several others have very low income tax rates even though they do tax income. Colorado, Louisiana, and Mississippi have top income tax rates under 6 percent. Montana and North Dakota are also relatively low.

These states still collect income tax, so they do not belong in the nine-state list. But if you are choosing between a no-income-tax state and a low-income-tax state, the difference in your actual tax bill depends on your income level, how much you spend, and what you own. A person earning $50,000 might pay less total tax in a high-sales-tax state than in a low-income-tax state, while a high earner might pay more.

What happens to your federal taxes if you move

Moving to a no-income-tax state does not change your federal tax return. You still file Form 1040 with the IRS and pay federal income tax on all your income, just as you did before. Your state of residence changes, but the federal government taxes you the same way.

You do need to update your address with the IRS and notify your employer of your move so they withhold the correct amount from your paycheck. If you move mid-year, you may owe state income tax to your old state for the months you lived there, depending on that state's rules.

How to determine your state residency for tax purposes

Your state of residence for tax purposes is usually the state where you spend the most time and have your permanent home. If you move to Florida or Texas, you need to establish residency there—not just rent an apartment for a few months.

Most states look at where you have a driver's license, where you register your car, where you vote, and where your family lives. If you are moving from a high-income-tax state like California or New York, keep records showing you have left: update your address with the DMV, register to vote in your new state, and update your mailing address with banks and employers.

Some states challenge people who claim to have moved away, especially high-income earners. If you spend half the year in your old state and half in your new state, you may still owe tax to the old state. The rules vary, so if you are making a major move for tax reasons, consider talking to a tax professional in your new state.

Frequently Asked Questions

Do I have to move to a no-income-tax state to avoid state income tax?

Yes, you must establish residency there. straightforward working remotely for a company in a no-income-tax state while living elsewhere does not exempt you from your home state's income tax. You owe tax to the state where you live, not where your employer is located.

Is New Hampshire really a no-income-tax state?

Mostly. New Hampshire does not tax wages, but it does tax dividend and interest income at 5 percent. If your income comes from a job or retirement account, you pay no state tax. If you live on investment income, you will owe some state tax.

Will I pay less in total taxes if I move to a no-income-tax state?

It depends on your income and spending. A high earner moving from California to Texas saves on income tax but may pay more in sales tax. Someone on a fixed retirement income may come out ahead. Compare the sales tax, property tax, and any other state taxes in your specific situation.

Can I claim residency in a no-income-tax state if I only own property there?

Owning property is not enough. You must actually live there and establish residency by getting a driver's license, registering to vote, and spending the majority of your time there. States investigate claims of residency, especially when someone is trying to avoid a high-income-tax state.

Do no-income-tax states tax capital gains?

Most do not. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax capital gains. New Hampshire does tax capital gains as part of its dividend and interest tax. If you sell an investment and make a profit, you owe federal capital gains tax but not state tax in these eight states.