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 income from wages, salaries, or self-employment. New Hampshire taxes only dividend and interest income, not wages. If you live or work in one of these states, you will not owe state income tax on your paycheck, though you will still owe federal income tax to the IRS.

The absence of income tax does not mean these states have no taxes at all. They fund schools, roads, and services through sales tax, property tax, corporate tax, or other revenue sources. The tax burden shifts rather than disappears.

Moving to a no-income-tax state can reduce your total tax bill, but the savings depend on your income level, where you currently live, and what other taxes you pay. A person earning $50,000 in California (which has a 9.3% state income tax) would save roughly $4,650 per year by moving to Texas, but would pay more in property tax or sales tax in Texas depending on the county.

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 (dividends and interest) but not wages, making it a partial no-income-tax state.
  • States without income tax fund services through sales tax, property tax, and corporate tax, so your total tax burden may not be lower overall.
  • Your actual savings from moving to a no-income-tax state depends on your income, current state, and how much you spend and own property.

How no-income-tax states replace that revenue

States without income tax rely on other sources to pay for government operations. Sales tax is the most common replacement: Texas has a 6.25% state sales tax (plus local additions), and Washington has 6.5%. Tennessee and Louisiana have the highest combined state and local sales taxes in the country, often exceeding 9%.

Property tax varies widely. New Hampshire has no sales tax but charges one of the highest property tax rates in the nation—roughly 2.1% of home value per year. Wyoming has low property tax but high mineral extraction taxes. Alaska has no sales tax and low property tax but funds itself partly through oil revenue and corporate taxes.

Understanding the full tax picture in your state requires looking at all three: income tax, sales tax, and property tax. A state with no income tax but 10% sales tax may cost you more than a state with 5% income tax and 7% sales tax, depending on how much you earn and spend.

How income tax works in states that have it

States with income tax set their own rates and brackets, separate from federal tax. California's top rate is 13.3%. New York's is 10.9%. Some states like Colorado and Illinois have flat rates—Colorado charges 4.4% on all income regardless of how much you earn.

State income tax is calculated on your federal taxable income, but each state defines deductions and credits differently. A deduction you can take in one state may not be available in another. You file a separate state return in addition to your federal return, and you pay both.

If you move from a state with income tax to one without, you will not owe tax to your old state on income earned after you leave, but you may owe it on income earned while you lived there. The timing of your move matters for that tax year.

When moving for tax savings makes financial sense

Moving to a no-income-tax state saves money only if the total tax burden is lower. For high earners, the savings can be substantial. Someone earning $200,000 in California pays roughly $26,600 in state income tax; in Texas, they pay zero state income tax on wages. But they will pay more in property tax or sales tax in Texas, so the net savings is real but smaller than the income tax difference alone.

For lower earners, the math often does not favor a move. Someone earning $35,000 pays little or no state income tax in most states anyway, so moving to a no-income-tax state saves almost nothing. They may end up paying more in sales tax or property tax instead.

Moving costs money—real estate fees, relocation expenses, time away from work. You need to earn enough in your state to make the tax difference larger than the cost of moving. Most financial advisors suggest the break-even point is around $100,000 to $150,000 in annual income, though this varies by which states you are comparing.

Tax residency and part-year moves

Your state of residency for tax purposes is usually where you live on December 31 of the tax year. If you move from California to Texas on June 15, you owe California income tax on income earned January 1 through June 14, and Texas owes you nothing (since Texas has no income tax). You file a part-year resident return in California for those six months.

Some states make residency harder to shed. California requires you to prove you have left the state—selling your home, moving your family, changing your driver's license, and establishing residency elsewhere all help. If you keep a home in California or spend more than half the year there, California may claim you are still a resident and tax your worldwide income.

If you work remotely for a company in a high-tax state but live in a no-income-tax state, you owe tax to the state where you live, not where your employer is based. Your employer should withhold based on your home address. If they withhold for the wrong state, you correct it when you file your return.

Retirement income and no-income-tax states

Some no-income-tax states exempt retirement income from what little tax they do collect. Tennessee and New Hampshire tax interest and dividend income but not retirement account withdrawals or Social Security. This makes them attractive to retirees, though you still pay federal tax on retirement income.

If you receive a pension, 401(k) withdrawal, or IRA distribution, check your state's rules. Some states exempt all retirement income. Others exempt only Social Security. A few tax retirement income the same as wages. This can significantly affect your after-tax retirement income.

Moving to a no-income-tax state in retirement can stretch your savings, especially if you have substantial investment income or pension payments. A retiree with $60,000 in annual pension income saves roughly $5,400 per year by moving from New York (6.85% tax) to Florida, before accounting for differences in property tax or cost of living.

States with partial or conditional income tax breaks

A few states fall between full income tax and no income tax. New Hampshire taxes only interest and dividend income, not wages—useful if most of your income is from investments. Tennessee taxes only interest and dividend income as well, though it is phasing out that tax by 2026.

Some states offer tax breaks for specific types of income. Louisiana exempts military retirement pay. Mississippi exempts all retirement income. Illinois exempts retirement income and investment income but taxes wages. These partial exemptions matter most to retirees and people with investment income.

Before moving for tax reasons, research not just whether a state has income tax, but what types of income it taxes and what deductions or credits it offers. A state with "no income tax" might still tax your specific situation.

Federal tax obligations do not change

Living in a no-income-tax state does not reduce your federal income tax. You still file a federal return with the IRS and pay federal tax on your income at the same rate as someone in California or New York. The only difference is that you do not file a state return or pay state tax.

Self-employed people in no-income-tax states still pay federal self-employment tax (Social Security and Medicare tax), which is 15.3% of net earnings. This is a federal obligation, not a state one, so it applies everywhere.

Your federal tax bracket, standard deduction, and credits are the same regardless of where you live. State income tax is a separate layer on top of federal tax, not a replacement for it.

Frequently Asked Questions

Do I have to move to a no-income-tax state to benefit from lower taxes?

No. You can reduce your federal tax bill through retirement account contributions, charitable donations, and other deductions regardless of where you live. State income tax is only one part of your total tax burden. For most people earning under $100,000, the tax savings from moving do not justify the cost of relocation.

If I work in a high-tax state but live in a no-income-tax state, which state taxes my income?

The state where you live taxes your income, not the state where your employer is based. Your employer should withhold based on your home address. If you work in New York but live in Florida, Florida does not tax you (it has no income tax), and New York does not tax you either because you do not live there. You owe only federal tax.

Does Social Security count as income in no-income-tax states?

No state taxes Social Security income. Federal tax may explore to Social Security depending on your total income, but state tax never does. This is true in every state, including those with income tax.

Can a state tax me after I move away?

Your old state can tax income you earned while you lived there, even after you move. If you leave California on July 1, you owe California income tax on income earned January 1 through June 30. After July 1, California cannot tax you unless you return. Some states like California scrutinize moves carefully and may claim you are still a resident if you keep property or spend significant time there.

What is the highest sales tax in a no-income-tax state?

Tennessee and Louisiana have the highest combined state and local sales tax rates in the country, often exceeding 9.5%. If you live in a high-sales-tax area of a no-income-tax state, your total tax burden may be similar to or higher than a state with income tax and lower sales tax. Compare the full picture before moving.