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. This means residents in these states pay no state income tax on money earned from a job, business, or retirement accounts like IRAs and 401(k)s.
New Hampshire is a partial exception: it taxes interest and dividend income but not wages. The other eight states tax neither wages nor investment income. This does not mean these states have no taxes at all — they fund schools, roads, and services through sales tax, property tax, corporate tax, and other sources.
If you move to one of these states or work remotely for a company in one, you will not owe state income tax on that income. If you move away from one of these states, you will owe income tax to your new state on income earned after you leave. The timing of your move matters: most states tax income based on where you lived when you earned it.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax neither wages nor investment income; New Hampshire taxes investment income but not wages.
- These nine states fund government services through sales tax, property tax, and corporate tax instead of income tax.
- If you work remotely for a company in a no-income-tax state but live in a state that taxes income, you owe tax to your home state, not the company's state.
- Moving to a no-income-tax state can reduce your overall tax burden, but these states often have higher sales or property taxes that offset the savings.
How no-income-tax states fund their budgets
States without income tax rely on other revenue sources to pay for schools, highways, police, and other services. Sales tax is the most common replacement: most no-income-tax states charge 5 to 7 percent sales tax on purchases, and some add local sales tax on top of that. Texas, for example, has no state income tax but a combined state and local sales tax that can reach 8.25 percent depending on the city.
Property tax is another major source. Alaska and Wyoming have relatively low property taxes, but Florida and Tennessee charge higher rates to make up for lost income tax revenue. Some no-income-tax states also tax corporate income, oil and gas extraction, or specific industries. Nevada taxes casino and gaming revenue heavily. Alaska taxes oil production and uses those revenues to fund the state budget and pay residents an annual oil dividend.
The total tax burden — income tax plus sales tax plus property tax — varies widely. A person earning $60,000 a year might pay less total tax in Texas than in a high-income-tax state like California, but might pay more in Florida if they own a home, because Florida property taxes are steep. Comparing states requires looking at your specific situation: your income level, whether you own property, and how much you spend on taxable goods.
Remote work and state income tax obligations
If you live in a state with income tax but work remotely for a company based in a no-income-tax state, you still owe income tax to your home state. Your state taxes you based on where you live and work, not where your employer is located. You will report your income to your home state and pay its income tax rate.
The reverse is also true: if you live in a no-income-tax state and work remotely for a company in a state with income tax, you do not owe that state's income tax. You owe tax only to your home state, which has no income tax. Some states have tried to tax remote workers who live out of state, but most have backed away from this practice because it is difficult to enforce and creates legal disputes.
If you are considering moving to a no-income-tax state specifically to reduce your taxes, check whether your employer will let you work remotely from there. Some companies require employees to live in the state where the company is based, or they adjust your salary if you move to a lower-cost area. Confirm the arrangement before you relocate.
Retirement income and investment income in no-income-tax states
Most of the nine no-income-tax states also do not tax retirement income, including Social Security, pensions, and withdrawals from 401(k)s and IRAs. This makes them popular destinations for retirees. However, New Hampshire taxes interest and dividend income at 5 percent, even though it does not tax wages. If you live on investment income in New Hampshire, you will owe state tax on it.
Tennessee recently changed its tax law: it eliminated its tax on investment income starting in 2021, so it now joins the other eight states in taxing neither wages nor investment income. If you are retired and living on dividends or interest, Tennessee, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming all offer tax-free treatment. New Hampshire does not.
If you receive a pension from a former employer, most no-income-tax states do not tax it. However, some states that do have income tax offer pension exemptions for military retirees or public employees. Check your specific state's rules if you are receiving a pension and considering a move.
Moving to a no-income-tax state: what to know about timing
The date you establish residency in a new state matters for taxes. Most states tax income based on when you earned it and where you lived when you earned it. If you move from California to Texas on June 15, you owe California income tax on income earned from January 1 to June 15, and you owe no Texas income tax on income earned after June 15.
To establish residency, you typically need to move your primary home, get a driver's license, register your car, and update your address with your employer and bank. Some states have specific rules about what counts as residency — for example, owning a home or renting an apartment, registering to vote, or living there for a certain number of days per year. If you split time between two states, the state where you spend more than half the year usually considers you a resident.
If you are self-employed or own a business, the rules are more complex. Some states tax business income based on where the business operates, not where you live. Consult a tax professional before moving if you own a business or have complicated income sources.
States with partial income tax exemptions
A few states tax income but offer exemptions for certain types of income. Illinois does not tax retirement income, including pensions and Social Security, but it does tax wages. Mississippi does not tax retirement income either. These states are not income-tax-free, but they offer significant tax breaks for retirees.
Pennsylvania does not tax retirement income but does tax wages and investment income. Louisiana offers a tax break on military retirement pay. These partial exemptions can matter if you are retired or receiving a pension, but they do not eliminate state income tax the way the nine no-income-tax states do.
If you are comparing states for tax purposes, look at your specific income sources. A retiree living on a pension might pay less total tax in Illinois than in a neighboring state with a lower overall income tax rate, because the pension exemption saves more than the lower rate would.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. If you work remotely and your employer allows it, you can move to a no-income-tax state and work for a company based anywhere. You will owe income tax only to your home state. However, confirm with your employer that remote work from that state is allowed, and check whether they will adjust your salary based on your location.
If I move to a no-income-tax state, do I owe back taxes to my old state?
No, as long as you establish residency in the new state before the end of the tax year. You owe income tax to your old state only on income earned while you lived there. Once you move and establish residency elsewhere, your old state has no claim on future income. Keep documentation of your move — a lease, utility bill, or driver's license — in case your old state questions when you left.
Are no-income-tax states cheaper to live in overall?
Not always. While you save on income tax, you may pay more in sales tax and property tax. Texas has no income tax but charges sales tax up to 8.25 percent. Florida has no income tax but high property taxes. Compare the total tax burden for your situation — your income, whether you own a home, and your spending habits — rather than looking at income tax alone.
Does New Hampshire really have no income tax?
New Hampshire has no tax on wages, but it taxes interest and dividend income at 5 percent. If you earn money from a job, you pay no state income tax. If you live on investment income, you owe tax. It is the only state with this split approach.
Can I claim residency in a no-income-tax state if I only own a vacation home there?
Probably not. Most states require you to live there as your primary residence for at least part of the year and show ties like a driver's license, voter registration, and utility bills in your name. Owning a vacation home alone does not establish residency for tax purposes. If you split time between states, the state where you spend the majority of the year will consider you a resident.