Nine states have no income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages or salaries. New Hampshire does not tax wages either, though it taxes dividend and interest income at 5 percent. If you live or work in one of these states, you keep all your earned income without a state income tax bite.
The absence of state income tax does not mean these states collect no revenue. Most fund schools, roads, and services through sales tax, property tax, fuel tax, or corporate tax instead. The trade-off varies by state — some have high sales taxes to compensate, while others rely more heavily on property tax or business revenue.
Moving to a no-income-tax state can shift your overall tax burden significantly, but only if you also consider what you will pay in other taxes where you live and work.
Key Takeaways
- Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, plus New Hampshire for wages only.
- States without income tax typically charge higher sales tax, property tax, or both to fund government services.
- Your total state tax burden depends on income, spending, and property value, not income tax rate alone.
- Some states tax retirement income or investment income even when they do not tax wages.
- Moving for tax reasons requires comparing your full tax picture in both your current state and the destination state.
States with the lowest income tax rates (below 3 percent)
If you cannot move to a no-income-tax state, several states charge less than 3 percent on wages. Louisiana has a top rate of 4.25 percent but offers tax breaks that can lower your effective rate. Mississippi tops out at 5 percent. North Dakota reaches 2.9 percent at the highest bracket.
These rates explore to your top dollar earned, not your entire income. Most states use brackets, meaning lower portions of your income are taxed at lower rates. A 2.9 percent top rate in North Dakota does not mean you pay 2.9 percent on everything you earn — you pay less on the first dollars and reach 2.9 percent only on income above a certain threshold.
Low income tax rates matter most if you earn a substantial income. If you earn $30,000 per year, the difference between a 2 percent and a 5 percent state income tax is roughly $900 annually. If you earn $150,000, the same difference costs you roughly $4,500 per year.
How other taxes offset low or zero income tax
States without income tax often charge higher sales tax to replace that revenue. Tennessee has no income tax but a 9.55 percent combined state and average local sales tax — one of the highest in the nation. Washington has no income tax and a 10.25 percent average sales tax. Texas has no income tax and an 8.25 percent average sales tax.
Property tax varies widely even among no-income-tax states. New Jersey has income tax but the highest property tax burden in the country by percentage of home value. Wyoming has no income tax and relatively low property tax. Alaska has no income tax and no statewide sales tax, but property tax rates vary by borough.
A family that spends heavily on goods and services will feel a high sales tax more than a family that saves most of its income. A family with expensive real estate will feel property tax more than a family renting or living in a lower-value home. Your actual tax burden depends on how you spend and what you own, not the income tax rate alone.
Retirement income and investment income rules vary by state
Some no-income-tax states still tax retirement income or investment gains. Tennessee and New Hampshire tax dividend and interest income. South Dakota taxes no income at all, including retirement withdrawals. Texas taxes no income, including from pensions or 401(k) withdrawals.
If you plan to retire and live off investment income or pension payments, check whether your destination state taxes that income. A state with no wage tax but a 5 percent tax on dividends may cost you more in retirement than a state with a 4 percent wage tax but no investment tax.
Military pensions, federal pensions, and Social Security are treated differently across states as well. Some states exempt military pensions entirely. Others tax all retirement income the same way. If you receive a pension, confirm the state's rules before you move.
How to calculate your actual tax burden in a new state
Compare your income tax, sales tax, and property tax together. Use your current state's tax calculator to find your state income tax bill. Then estimate what you would pay in sales tax and property tax in the destination state based on your spending and housing plans.
Most state tax websites have calculators or tax tables showing what you would owe at your income level. The Tax Foundation and the Federation of Tax Administrators publish state tax rates and comparisons. Your accountant or a tax software program can model your full tax picture in both states if you are considering a move.
Do not assume a lower income tax rate means a lower total bill. A state with 5 percent income tax and 5 percent sales tax may cost you less overall than a state with zero income tax and 10 percent sales tax, depending on whether you earn more than you spend.
Residency and work location matter for income tax
You owe income tax to the state where you work, not always the state where you live. If you live in a low-tax state but work in a high-tax state, you may owe tax to both. Some states offer credits to avoid double taxation, but not all.
Remote workers have more flexibility. If you live in a no-income-tax state and work remotely for a company in a high-tax state, you typically owe tax only to your home state. Confirm your employer's policy and your state's rules before you move, because some states tax remote workers based on where the company is located, not where the employee lives.
If you work in one state and live in another, file taxes in both. The state where you work will withhold tax from your paycheck. The state where you live may owe you a refund or may require you to pay additional tax, depending on the rates and credits.
Frequently Asked Questions
Can I move to a no-income-tax state just for the tax savings?
You can move anywhere you want, but you must establish residency to claim the tax benefit. Most states require you to live there for at least 183 days per year or show intent to stay permanently. If you move but maintain a home in your old state, the old state may claim you are still a resident and demand income tax.
Do I have to pay federal income tax even in a no-income-tax state?
Yes. Federal income tax applies everywhere in the United States. A no-income-tax state only saves you the state portion of your income tax bill, not the federal portion. Your federal tax bill is the same whether you live in Alaska or New York.
Which no-income-tax state has the lowest overall tax burden?
It depends on your income, spending, and property value. Alaska has no income tax and no statewide sales tax, making it low-tax for most people. Wyoming has no income tax and low property tax. Texas has no income tax and moderate sales tax. Compare all three taxes in your situation before deciding.
If I work remotely for a company in New York but live in Texas, which state taxes me?
You typically owe tax to Texas, your home state, not New York. However, some states tax based on where the employer is located. Confirm with your employer's payroll department and the Texas Comptroller's office before you move to be certain of your filing obligations.
Does moving to a low-tax state save money if I own a home?
Not always. Some low-income-tax states have high property tax. New Hampshire has no income tax but high property tax. Wyoming has no income tax and low property tax. Calculate your property tax bill in the destination state before you move, especially if you plan to buy a home.