Nine states collect no income tax on wages or salaries

Nine U.S. states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes interest and dividend income but not wages. If you live or work in one of these states, you do not pay state income tax on your paycheck, though you still pay federal income tax to the IRS.

The absence of state income tax does not mean these states collect no revenue. Most fund their budgets through sales tax, property tax, corporate tax, or some combination. The tax burden straightforward shifts to different categories of spending and ownership rather than disappearing.

Moving to a no-income-tax state can reduce your overall tax bill, but the savings depend on your income level, where you currently live, and what you spend. A high earner in California or New York may save substantially. Someone in a low-tax state already may see little difference.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
  • New Hampshire taxes investment income but not wages, making it a partial exception.
  • States without income tax typically rely on sales tax, property tax, or corporate tax instead, so your total tax burden depends on your spending and property ownership.
  • The tax savings from moving to a no-income-tax state vary widely based on your current state, income level, and lifestyle.
  • Retirement income, Social Security, and investment earnings are taxed differently in each state, so retirees should check the rules before relocating.

How no-income-tax states fund their budgets

States without income tax rely on other revenue sources. Sales tax is the most common replacement — Texas, Washington, and Tennessee all have sales tax rates between 8 and 9.5 percent. Florida's sales tax is 6 percent. Alaska has no sales tax but collects corporate income tax and oil revenue. Wyoming and South Dakota use sales tax and property tax.

Property tax rates vary significantly among these states. New Hampshire, despite having no income tax, has one of the highest property tax rates in the nation. Texas property taxes are moderate to high. Alaska and Wyoming have lower property tax burdens. If you own a home, the property tax in your destination state matters as much as the income tax you are leaving behind.

Corporate taxes and business licensing fees also fill gaps. Nevada, for example, has no corporate income tax either, which is why many businesses incorporate there. These taxes are passed along to consumers through higher prices on goods and services, so the tax burden is distributed across the population in ways that are less visible than a paycheck deduction.

Comparing your total tax burden before and after a move

To know whether moving saves you money, calculate what you actually pay in taxes now and what you would pay in the new state. Start with your state income tax — use your most recent tax return. Then research the sales tax rate, property tax rate (if you own), and any local taxes in the city where you plan to move.

A rough example: if you earn $80,000 in California and pay about $3,500 in state income tax, plus 7.25 percent sales tax on $20,000 in annual spending ($1,450), your total is roughly $4,950. In Texas, you pay zero income tax but 8.25 percent sales tax on the same $20,000 ($1,650), plus property tax if you own. If your Texas home has a property tax of $2,000 per year, your total is $3,650 — a savings of about $1,300. But if you spend $40,000 annually instead of $20,000, the sales tax jumps to $3,300, and the savings shrink.

Your actual numbers depend on your specific situation. Use your state's tax calculator or consult a tax professional before making a move based on tax savings alone.

Special rules for retirement income and investments

If you are retired or living on investment income, the tax picture changes. Some no-income-tax states exempt retirement income, while others tax it differently than wages.

Tennessee and New Hampshire tax interest and dividend income but not wages or retirement distributions. Florida, Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming tax neither wages nor investment income. This makes them especially attractive to retirees living on savings or stock portfolios.

Social Security benefits are not taxed by any state, regardless of where you live. However, if you have other retirement income — a pension, 401(k) withdrawals, or investment gains — the state rules matter. Before retiring to a no-income-tax state, verify how your specific income sources are treated.

How residency and work location affect your taxes

Your state of residence determines which state income tax you owe. If you live in Florida but work remotely for a company in New York, you pay Florida income tax (none) and federal tax, not New York tax. Your employer withholds based on where you live, not where the company is located.

If you work in one state but live in another, the rules are more complex. Some states tax income earned within their borders even if you live elsewhere. You may owe taxes to both states, though most allow a credit for taxes paid to the other state to avoid double taxation. If you are considering a move and work across state lines, ask your employer's payroll department how the change affects your withholding.

Establishing residency in a new state usually requires living there for at least part of the year and having a driver's license, voter registration, or lease showing your address. straightforward moving does not automatically change your tax residency — you must take steps to document it.

States that tax some income but not wages

New Hampshire is the only state in the no-income-tax group that taxes part of your income. It collects a 5 percent tax on interest and dividend income but no tax on wages, salaries, or retirement distributions. This makes it appealing to wage earners but less attractive to retirees living on investment income.

Tennessee recently eliminated its tax on investment income, joining the full no-income-tax group. If you are researching older articles or guides, Tennessee may be listed as taxing dividends and interest — that changed in 2021.

Understanding these partial exceptions matters if your income comes from sources other than wages. A retiree in New Hampshire with $40,000 in Social Security and $20,000 in dividend income pays tax only on the dividends, while the same person in a state with full income tax would pay on both.

Practical steps if you are considering a move

If you are thinking about relocating to a no-income-tax state, start by calculating your current total tax burden — income, sales, and property taxes combined. Then research the equivalent taxes in your target state using that state's tax department website or a tax calculator.

Consider non-tax factors as well: cost of living, job market, climate, and proximity to family. A state with no income tax but a much higher cost of living may not save you money overall. Some no-income-tax states have lower housing costs; others do not.

If you are retired or planning to retire, contact the state tax department directly and ask about how your specific income sources are taxed. Tax rules change, and a phone call to the official source takes minutes and prevents costly mistakes.

Frequently Asked Questions

Do I still pay federal income tax in a no-income-tax state?

Yes. Federal income tax is separate from state income tax. Everyone in the United States pays federal tax to the IRS based on their income, regardless of which state they live in. A no-income-tax state only removes the state portion of your tax bill.

Can I move to a no-income-tax state just for the tax break?

You can move for any reason, but the IRS and state tax departments watch for people who claim residency in a low-tax state while maintaining ties to a high-tax state. You must genuinely establish residency — get a driver's license, register to vote, sign a lease or buy property, and spend time there. Claiming residency without actually living there can trigger an audit.

Which no-income-tax state has the lowest overall taxes?

That depends on your situation. Alaska has no income tax and no sales tax, making it attractive for high earners, but property taxes and cost of living are high. Wyoming and South Dakota have low property taxes. Texas has moderate property and sales taxes. Compare all three categories — income, sales, and property — for your specific circumstances.

If I retire in a no-income-tax state, do I pay taxes on my 401(k) withdrawals?

You still pay federal income tax on 401(k) withdrawals. In most no-income-tax states, you pay no state tax on those withdrawals either. New Hampshire is the exception — it does not tax retirement distributions. Verify the rules in your target state before moving.

Does moving to a no-income-tax state affect my federal tax return?

No. Your federal tax return is the same regardless of which state you live in. You report your income to the IRS the same way. The difference is whether you also file a state income tax return — in a no-income-tax state, you do not.