Nine states collect no income tax on wages or salaries

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire also taxes interest and dividend income but not wages. These nine states fund government operations through sales tax, property tax, excise taxes on specific goods, and other revenue sources instead.

If you live in one of these states, you will not owe state income tax on money you earn from a job. However, living in a no-income-tax state does not mean you pay nothing to the state — you may pay more in sales tax or property tax than residents of states with income tax. The total tax burden depends on your income level, spending habits, and whether you own property.

Federal income tax still applies regardless of which state you live in. Your federal return is separate from your state return, and moving to a no-income-tax state does not change what you owe the federal government.

Key Takeaways

  • Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax wages or salaries.
  • New Hampshire taxes interest and dividend income but not wages, making it different from the other eight states.
  • No-income-tax states typically collect more revenue through sales tax, property tax, and excise taxes on items like fuel and alcohol.
  • Moving to a no-income-tax state does not reduce your federal income tax burden.
  • Whether a no-income-tax state saves you money depends on your income, how much you spend, and whether you own property.

How no-income-tax states replace that revenue

States without income tax rely on other sources to fund schools, roads, courts, and other services. Sales tax is the most visible replacement — most no-income-tax states have a higher sales tax rate than the national average. Texas, for example, has a state sales tax of 6.25 percent, and local jurisdictions can add more on top of that.

Property tax is another major source. Homeowners in no-income-tax states often pay higher property taxes than homeowners in income-tax states. Alaska and Wyoming have lower property taxes than average, but Florida, Tennessee, and Texas have property tax rates that offset the lack of income tax for property owners.

Excise taxes — taxes on specific goods — make up the difference in many states. These include taxes on gasoline, alcohol, tobacco, and gambling. Some states also tax business income or corporate profits while leaving wage earners untaxed.

Which states tax investment income but not wages

New Hampshire is the only state in the no-income-tax group that taxes investment income. New Hampshire residents do not pay state tax on wages, but they do pay tax on interest income and dividend income at a rate of 5 percent. This makes New Hampshire different from the other eight states, which tax neither wages nor investment income.

If you live in New Hampshire and earn money from stocks, bonds, or savings accounts, you will owe New Hampshire tax on that income. Wages from employment are not taxed. This structure means a retiree living on investment income pays state tax, while a wage earner does not.

Whether a no-income-tax state actually saves you money

Moving to a no-income-tax state does not automatically mean lower total taxes. The math depends on your income level and how you spend money. A high-income earner who spends little and owns no property may save significantly. A low-income earner who rents and spends most of their money on taxable goods may pay more overall.

Someone earning $100,000 per year in a state with 5 percent income tax pays $5,000 in state income tax. That same person in Texas pays zero income tax but may pay more in sales tax and property tax depending on where they live and what they buy. A person earning $30,000 per year might see little difference or even pay more in a no-income-tax state if they spend most of their income on groceries and other taxable items.

Property owners should compare property tax rates carefully. Florida has no income tax but charges property tax rates that are moderate to high depending on the county. Wyoming has both no income tax and relatively low property taxes, making it attractive to property owners. Tennessee has no income tax but charges property tax on personal property as well as real estate, which can add up.

How to file taxes if you live in a no-income-tax state

If you live in one of the nine no-income-tax states, you still file a federal return every year if your income is above the threshold. For 2024, most people need to file if they earned more than $14,600 (the exact amount depends on age and filing status). You do not file a state return because your state does not tax income.

The only exception is New Hampshire residents with interest or dividend income. If you live in New Hampshire and earned more than $2,400 in interest and dividends combined in a year, you must file a New Hampshire return for that income. You still file your federal return separately.

If you moved to a no-income-tax state during the year, you may need to file a return in your previous state for the months you lived there. Contact that state's tax authority to find out whether you owe a partial-year return.

What happens if you move to a no-income-tax state mid-year

If you move from an income-tax state to a no-income-tax state partway through the year, you typically owe income tax to your old state only for the months you lived there. Your new state will not tax your income for the year, even if you earned money there before you moved.

For example, if you lived in New York (which has state income tax) from January through June and earned $40,000, then moved to Florida in July and earned another $40,000, you owe New York tax on the $40,000 you earned while living there. You owe no Florida tax on either amount. Your federal return covers all $80,000 for the full year.

Keep records of when you moved and where you lived each month. Your old state may ask for proof of your move date, such as a lease, utility bill, or driver's license with your new address.

Remote work and taxes in no-income-tax states

If you work remotely for a company in another state, the state where you live determines whether you owe state income tax on that income. If you live in Texas and work remotely for a company in California, you owe no Texas income tax. You do not owe California tax either, because you live and work in Texas.

However, some states have tried to tax remote workers who live out of state. This is rare and usually unsuccessful, but it is worth checking your employer's state tax rules if you work remotely. Most employers withhold taxes based on where you live, not where the company is located, so this is usually handled automatically.

If you are self-employed and live in a no-income-tax state, you still owe federal self-employment tax and federal income tax. You do not owe state income tax, but you may owe state sales tax on goods you sell, depending on your state's rules.

Frequently Asked Questions

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

Yes. Federal income tax is separate from state income tax and applies to all U.S. residents regardless of which state they live in. Living in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, or New Hampshire does not reduce your federal tax burden.

Is New Hampshire really a no-income-tax state if it taxes investment income?

New Hampshire is classified as a no-income-tax state because it does not tax wages or salaries. However, it is the only state in that group that taxes investment income (interest and dividends). If you earn money only from a job, you pay no New Hampshire tax. If you earn investment income, you do.

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

This varies by income level and lifestyle. Wyoming has low property taxes and no income tax, making it attractive to property owners. Alaska has no state sales tax, which helps residents who spend a lot. Florida has moderate property taxes and no income tax. Compare sales tax, property tax, and excise taxes in the specific state and county where you plan to live.

Can I avoid federal taxes by moving to a no-income-tax state?

No. Federal income tax applies everywhere in the United States. Moving to a no-income-tax state reduces only your state tax burden, not your federal tax burden. You will still file a federal return and owe federal tax based on your income.

What if my employer is in a different state than where I live?

You owe income tax to the state where you live and work, not where your employer is located. If you live in Texas and work remotely for a New York company, you owe no Texas income tax and no New York income tax. Your employer should withhold taxes based on your home address.