Nine states collect no state 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 taxes only dividend and interest income, not wages, so residents who earn paychecks pay no state income tax at all. The other eight states tax neither wages nor investment income.

These nine states fund government operations through other revenue sources: sales tax, property tax, corporate tax, excise tax on specific goods, and fees. The tax burden looks different in each state. Some have high sales taxes to compensate for the missing income tax; others rely more heavily on property tax or business taxes.

If you work in one of these states or are considering a move, understanding how the tax system works there matters for your actual take-home pay and what you pay when you buy things or own property.

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 but not wages, making it effectively no-income-tax for people who earn paychecks.
  • States without income tax typically charge higher sales tax, property tax, or both to fund schools and services.
  • If you move to a no-income-tax state, you still owe federal income tax and must file a federal return.
  • Working in a no-income-tax state but living in another state means you may owe income tax to your home state, not the state where you work.

How each no-income-tax state funds government

Alaska has no state sales tax and no income tax. It funds operations largely through oil revenue and corporate taxes. Property tax is set by individual municipalities, so it varies by location.

Florida has no income tax and no corporate income tax. It relies on sales tax (currently 6% statewide, higher in some counties), property tax, and excise taxes on items like fuel and cigarettes.

Nevada has no income tax. It uses sales tax (currently 6.85% statewide, higher in some counties), property tax, and gaming taxes from casinos.

South Dakota has no income tax. It funds schools and services through sales tax (currently 4.2% statewide, higher in some counties) and property tax.

Tennessee has no income tax on wages. It does tax investment income at 1% to 2%. The state relies on sales tax (currently 7% statewide, higher in some counties) and property tax.

Texas has no income tax and no corporate income tax. It uses sales tax (currently 6.25% statewide, higher in some counties), property tax, and business taxes.

Washington has no income tax. It funds operations through sales tax (currently 6.5% statewide, higher in some counties), property tax, and a capital gains tax on certain investment sales.

Wyoming has no income tax. It relies on sales tax (currently 4% statewide, higher in some counties), property tax, and mineral extraction taxes.

New Hampshire has no income tax on wages or salaries. It taxes dividends and interest income at 5%. The state uses sales tax on prepared food and certain services, property tax, and business taxes.

What "no income tax" actually means for your paycheck

If you live and work in a no-income-tax state, you do not pay that state any income tax on your wages. Your paycheck is not reduced by state income tax withholding. You still owe federal income tax, which is withheld from every paycheck regardless of which state you live in.

The difference shows up in your take-home pay. A person earning $50,000 in Texas keeps more of that money than someone earning the same amount in California, where state income tax can reach 13.3%. However, you may pay more in sales tax or property tax in the no-income-tax state, which offsets some of that gain depending on your spending and whether you own property.

If you move to a no-income-tax state from another state, you do not owe back taxes to your former state on income earned after you move, provided you establish residency in the new state and stop working in the old one.

What happens if you work in a no-income-tax state but live elsewhere

If you live in a state that has income tax but work in a no-income-tax state, you typically owe income tax to your home state, not to the state where you work. This is common for people who live near state borders and commute to work.

Your employer withholds tax based on where you live, not where you work. You report your income to your home state when you file your state return. Some states have reciprocal agreements that reduce or eliminate this tax, so the rules vary by which two states are involved.

If you are unsure whether your home state taxes income earned in another state, contact your state's department of revenue or ask your employer's payroll department.

How sales tax and property tax compare across no-income-tax states

The trade-off for no income tax is usually higher sales tax or property tax. The burden varies widely. Alaska has no state sales tax at all, making it unique. Washington has a 6.5% state sales tax plus local additions. Tennessee has a 7% state sales tax plus local additions.

Property tax also differs. Wyoming and South Dakota have relatively low property tax rates. Florida's property tax is moderate but varies by county. New Hampshire has high property tax rates, which is one reason residents feel the lack of income tax less than the numbers suggest.

If you are comparing the true cost of living in different no-income-tax states, add up the state sales tax rate, the local sales tax rate in the specific county or city, and the property tax rate for that area. The total tax burden depends on how much you spend and whether you own property.

Federal income tax still applies everywhere

No state income tax does not mean no income tax at all. You must file a federal income tax return and pay federal tax on your income, regardless of which state you live in. Federal tax rates and rules are the same in every state.

When you file your federal return, you report your total income and claim deductions or the standard deduction. You may also claim a credit for taxes paid to another state if you worked in multiple states during the year.

If you are self-employed, you also owe federal self-employment tax (Social Security and Medicare tax) in addition to federal income tax. Self-employment tax is not reduced by living in a no-income-tax state.

Moving to a no-income-tax state: what you need to know

If you are relocating to one of these nine states, you do not need to do anything special with the state tax system. Once you establish residency—usually by getting a driver's license, registering to vote, or signing a lease—you stop owing income tax to your former state on new income.

You may still owe tax to your former state on income earned before you moved. File your final return in that state for the year you moved, reporting only income earned through your move date. Your new state's tax year begins on January 1 of the following year.

Keep records of when you moved and where you lived each day of the tax year, in case your former state questions your residency. Some states audit people who claim to have moved out, especially if they still own property there.

Frequently Asked Questions

Do I still have to file a tax return if I live in a no-income-tax state?

You must file a federal return if your income exceeds the threshold set by the IRS (which varies by age and filing status). You do not file a state income tax return in the nine no-income-tax states. However, you may need to file a return in your former state if you moved during the year and earned income there.

Can I avoid federal taxes by moving to Alaska or Texas?

No. Federal income tax applies everywhere in the United States. Moving to a no-income-tax state reduces your state tax burden but does not change your federal tax obligation. You still file a federal return and pay federal tax on your income.

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

That depends on your personal situation—how much you earn, how much you spend, and whether you own property. Alaska has no state sales tax, which is unique. Wyoming and South Dakota have low property tax. Compare the specific rates for sales tax, property tax, and any other taxes in the county or city where you would live.

If I work remotely for a company in California but live in Texas, which state taxes my income?

Texas does not tax income. You owe federal tax on your income. California may try to tax you if you are still considered a California resident, but once you move to Texas and establish residency there, you typically owe California tax only on income earned before you moved. Check with a tax professional if you are unsure, because California's rules are complex.

Do I owe state income tax on money I inherited or won?

No state, including the nine no-income-tax states, taxes inheritances or lottery winnings as income. However, inheritances may be subject to federal estate tax if the estate is very large, and lottery winnings are subject to federal income tax. The state where you live does not add its own tax on top of that.