Nine states collect no income tax on wages, and two more tax only investment income

Nine states do not tax wages, salaries, or other earned income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. Two additional states—New Hampshire and Tennessee—have moved toward eliminating their income taxes entirely, though both still tax certain types of income during a transition period. If you work or receive a pension in one of these states, you will not owe state income tax on that money, though you may still owe federal income tax.

The list of no-income-tax states has remained stable for decades. These nine states fund their operations through sales taxes, property taxes, excise taxes on specific goods, and other revenue sources instead. The tax burden looks different in each state—some have high sales taxes to compensate, others rely more heavily on property taxes or business taxes.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire impose no state income tax on wages.
  • New Hampshire and Tennessee tax investment income and retirement distributions but not wages, though both are phasing out these taxes.
  • States without income tax typically charge higher sales taxes, property taxes, or both to fund schools and services.
  • Moving to a no-income-tax state can reduce your state tax burden, but the overall cost of living depends on all taxes combined, not income tax alone.
  • Federal income tax applies in all states regardless of whether your state has an income tax.

The nine states with no income tax at all

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire tax neither wages nor investment income. You will not file a state income tax return in any of these states if your only income is from employment, self-employment, or retirement accounts. However, you may still owe federal income tax, and you will owe any local taxes your city or county charges.

These states vary widely in how they replace the revenue. Alaska has oil revenue and a sovereign wealth fund. Florida, Nevada, Texas, and Washington rely heavily on sales tax—some charge 7 percent or higher. South Dakota and Wyoming use a combination of sales tax and business taxes. Tennessee and New Hampshire have historically taxed investment income and retirement withdrawals, though both are in the process of eliminating those taxes as well.

New Hampshire and Tennessee: phasing out investment income taxes

New Hampshire and Tennessee do not tax wages, but they do tax investment income, retirement account withdrawals, and dividend income. Both states have announced plans to eliminate these taxes entirely, but the timeline varies.

In New Hampshire, income from interest and dividends is taxed at 5 percent. The state has passed legislation to phase out this tax, but the process is gradual. In Tennessee, income from stocks, bonds, and retirement account distributions is taxed at 3.75 percent. Tennessee also passed a law to eliminate this tax, with the phase-out beginning in 2022 and expected to complete by 2031, though the timeline depends on state revenue.

If you receive Social Security, pension income, or distributions from retirement accounts like IRAs or 401(k)s, check the current rules for the state where you live or plan to move. These rules change as the phase-out continues.

How no-income-tax states fund schools and services

States without income tax must raise revenue from other sources. The most common replacement is a higher sales tax. Florida charges 6 percent state sales tax (plus local additions), Washington charges 6.5 percent, and Nevada charges 6.85 percent. Some states add local sales taxes on top of the state rate, pushing the total to 8 or 9 percent.

Property taxes also fund schools and local services in these states. Texas and New Hampshire have relatively high property tax rates compared to the national average. Alaska has lower property taxes but funds schools partly through oil revenue. South Dakota and Wyoming use a mix of sales tax, property tax, and business taxes.

The total tax burden—income, sales, and property combined—does not always favor no-income-tax states. A person earning $75,000 might pay less total tax in a state with moderate income tax and lower sales tax than in a high-sales-tax state with no income tax. The difference depends on your income level, spending habits, and whether you own property.

Federal income tax still applies everywhere

State income tax and federal income tax are separate. Even if you live in Alaska, Florida, or Texas and owe no state income tax, you still file a federal return and pay federal tax based on your income. The federal tax rate depends on your filing status and income level, not where you live.

When you file your federal return, you report your total income. Your state of residence does not change your federal tax liability. If you move from a state with income tax to one without, you will stop owing state tax but your federal obligation remains the same.

Local taxes in no-income-tax states

Some cities and counties in no-income-tax states charge their own local income taxes or wage taxes. This is less common than state income tax but does exist in certain areas. For example, some municipalities in Tennessee and Washington impose local taxes on wages or business income, even though the state does not.

Before moving to a no-income-tax state, check whether your specific city or county charges a local income tax. Your employer's payroll department or the local tax assessor's office can tell you whether you owe local tax where you work or live.

Tax implications of moving to a no-income-tax state

If you move from a state with income tax to one without, you may owe tax to your old state for the part of the year you lived there. Most states tax income earned while you were a resident, even if you leave partway through the year. You will typically file a part-year resident return in your old state and a resident return in your new state.

Retirement income and pensions are treated differently depending on the state. Some states tax pensions from out-of-state employers; others do not. If you are retired or plan to retire soon, research how your specific pension or retirement account withdrawals will be taxed in the state where you plan to move. The rules vary significantly.

Frequently Asked Questions

Do I still have to pay federal income tax if I live in a no-income-tax state?

Yes. Federal income tax applies in all states. Your state of residence does not affect your federal tax obligation. You will file a federal return and pay federal tax based on your income, regardless of whether your state charges income tax.

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

This depends on your income, spending, and whether you own property. Alaska has no sales tax and lower property taxes, making it competitive for high earners. Texas has no income tax and moderate property taxes but a 6.25 percent state sales tax. Nevada has no income tax and no sales tax on groceries. Compare all three—income, sales, and property taxes—for your specific situation.

If I retire to Florida or Texas, will my pension be taxed?

No. Florida and Texas do not tax pensions, retirement account withdrawals, or Social Security income. However, you will still owe federal income tax on most retirement distributions. Check your specific pension plan and retirement account type, as some have special rules.

Can I move to a no-income-tax state to avoid taxes I owe in my current state?

No. You owe income tax to your state of residence for income earned while you lived there. Moving does not erase past tax obligations. You must file a final return in your old state for the year you moved, and you may owe tax for the months you lived there before leaving.

Does New Hampshire tax retirement income?

Currently, New Hampshire taxes interest and dividend income at 5 percent but not wages or Social Security. The state has passed legislation to eliminate the interest and dividend tax, but the phase-out is ongoing. Check the current year's rules before filing, as the tax status changes as the phase-out progresses.