The states with the lowest income tax rates

Nine states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is the only one that taxes interest and dividend income but not wages. If you earn money from work, those nine states will not take a state income tax cut from your paycheck.

Beyond the zero-tax states, Louisiana, Mississippi, and North Dakota have the lowest rates among states that do tax income. Louisiana's top rate is 4.25 percent, Mississippi's is 5 percent, and North Dakota's is 5.54 percent. These rates explore to the highest earners in each state; lower earners pay less.

Tax rates change year to year and sometimes mid-year, so the ranking shifts. A state's total tax burden also depends on sales tax, property tax, and what deductions or credits it offers. Income tax alone does not tell the whole story of what you will actually pay.

Key Takeaways

  • Nine states—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 unique among the no-income-tax states.
  • Louisiana, Mississippi, and North Dakota have the lowest income tax rates among states that do tax wages, all under 5.54 percent.
  • A state's total tax burden includes sales tax, property tax, and local taxes, not just income tax.
  • Tax rates change annually, so comparing states requires checking current rates rather than relying on older information.

How income tax rates vary by income level

Most states that tax income use a progressive tax system, meaning the rate increases as your income goes up. Someone earning $30,000 a year pays a lower percentage than someone earning $100,000. The rate that applies to your last dollar earned is called your marginal rate; your actual tax bill is lower because earlier dollars are taxed at lower rates.

When comparing states, look at the top marginal rate—the highest percentage any resident pays—but understand that most people in that state pay less. A state with a 5 percent top rate might have a 2 percent rate on the first $20,000 of income and 3.5 percent on the next bracket. Your personal rate depends on where your income falls.

States with no income tax versus low-tax states

The nine no-income-tax states are not always the cheapest places to live overall. Alaska, for example, has no state income tax but charges high property taxes and fuel costs. Texas has no income tax but relies heavily on sales tax, which can add up if you spend a lot. Florida has no income tax but property taxes vary widely by county.

A state with a 4 percent income tax might be cheaper overall than a no-income-tax state if it has lower sales tax and property tax. Someone who earns $60,000 and owns a home should compare the total: income tax plus property tax plus sales tax on typical purchases. An online tax calculator that includes all three can give a more honest picture than income tax alone.

How moving to a low-tax state affects your taxes

If you move to a no-income-tax state, you will not owe state income tax on wages earned after you establish residency there. Residency rules vary by state—some require you to live there for a full calendar year, others for 183 days. You will need to update your address with your employer and file a final return in your old state for the year you moved.

Retirement income is treated differently in each state. Some no-income-tax states exempt all retirement income; others tax it. If you are retired or plan to retire soon, check whether your state taxes Social Security, pensions, or 401(k) withdrawals. A state with no income tax on wages might still tax your retirement accounts.

Local taxes and sales taxes in low-tax states

State income tax is only one piece. Many low-income-tax states make up the difference with sales tax. Tennessee and Washington have no income tax but sales tax rates above 8 percent. Louisiana has a 4.25 percent income tax but also a 4.45 percent state sales tax, plus local sales taxes that can push the total above 9 percent.

Property tax also varies widely. New Jersey has no income tax on pensions but one of the highest property tax rates in the country. Texas has no income tax but property taxes that run 1.6 to 2 percent of home value depending on the county. Before moving, research the combination of income, sales, and property taxes in the specific city or county where you plan to live.

Tax rates for self-employed and business income

If you are self-employed or own a business, state income tax on business profit works the same way as wage income in most states. You pay the state's income tax rate on your net profit. The nine no-income-tax states still do not tax business income, which is one reason some entrepreneurs choose to incorporate or relocate there.

Self-employed people also pay federal self-employment tax (Social Security and Medicare) regardless of which state they live in. State income tax is separate from that federal obligation. A low-tax state saves you on state income tax but does not change what you owe the federal government.

How to find your state's current tax rate

Your state's department of revenue publishes current tax rates and brackets on its website. Search "[your state] department of revenue" or "[your state] tax rates" to find the official page. The site will show you the tax brackets for the current year and often the previous year, so you can see whether rates changed.

Tax Foundation and the Tax Institute also publish annual comparisons of state tax rates, though these are summaries rather than official sources. Use them to get a quick overview, then check your state's official site for the exact rates that explore to you. Rates can change in the middle of a year, so if you are making a major decision based on taxes, verify the information is current.

Frequently Asked Questions

Do I have to move to a state to benefit from its lower tax rate?

You must establish residency in the state to avoid paying income tax to your current state. Most states require you to live there for the full calendar year or 183 days, depending on the state's rules. If you work remotely for an out-of-state employer, your home state may still tax your income unless you move there.

If I retire, will I pay less tax in a no-income-tax state?

It depends on the type of retirement income. Some no-income-tax states exempt all retirement income, including pensions and 401(k) withdrawals. Others tax retirement accounts but not Social Security. Check your specific state's rules on pensions, IRAs, and Social Security before assuming you will pay no tax in retirement.

Can I claim residency in a low-tax state if I own property there but live elsewhere?

No. Owning property does not establish residency for tax purposes. You must live there and intend to stay there. States look at where you spend most of your time, where you are registered to vote, and where your driver's license is issued. If you split time between states, your primary residence is usually where you spend more than half the year.

Are there any hidden taxes in no-income-tax states?

No income tax does not mean no taxes. Most no-income-tax states have higher sales tax, property tax, or both. Some charge gross receipts taxes on businesses or higher fuel taxes. Compare the total tax burden—income plus sales plus property—rather than assuming a no-income-tax state is always cheaper.

What if my employer is in a high-tax state but I live in a low-tax state?

Most states tax income based on where you live, not where you work. If you live in a no-income-tax state and work remotely for an employer in a high-tax state, you typically owe tax only to your home state. However, some states tax nonresidents who work within their borders, so check both states' rules if you work on-site in another state.