Nine states collect no state income tax on wages

Nine states do not tax wages or salaries at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes investment income and interest but not wages. These nine states fund government through sales tax, property tax, corporate tax, and other revenue sources instead.

The absence of state income tax does not mean these states are cheaper overall. A state without income tax often has higher sales tax or property tax to compensate. Tennessee and Washington, for example, have sales tax rates above 8 percent. Alaska has no sales tax but charges property tax. The total tax burden depends on your income level, where you spend money, and what you own.

If you are considering a move for tax reasons, compare your actual tax bill in your current state against your projected bill in a no-income-tax state. A high earner might save substantially. A person living on Social Security or retirement savings might see little difference, or even pay more.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
  • States without income tax typically rely on sales tax, property tax, and corporate tax, which may offset or exceed the income tax savings.
  • New Hampshire taxes investment income and interest but not wages, making it a partial exception.
  • Your total tax burden depends on your income, spending habits, and property ownership, not just the presence or absence of income tax.
  • Moving to a no-income-tax state for tax savings makes sense only after comparing your full tax picture in both locations.

How no-income-tax states replace that revenue

States without income tax must fund schools, roads, courts, and other services through other sources. The most common replacement is sales tax, which applies to purchases of goods and sometimes services. Tennessee, Washington, and Texas all have sales tax rates between 8 and 8.25 percent. Alaska has no state sales tax but allows municipalities to impose local sales tax.

Property tax is another major revenue source. Alaska, Nevada, and Wyoming have relatively low property tax rates, but Florida and Texas use property tax more heavily. New Hampshire relies significantly on property tax because it has no income tax and no sales tax on most goods.

Some states also tax corporate income, business revenue, or specific activities. Washington taxes capital gains above a certain threshold. Tennessee taxes investment income. These targeted taxes affect business owners and investors more than wage earners, but they still contribute to the overall tax environment.

Which states have the lowest total tax burden

Comparing total tax burden across states is complex because it depends on your personal situation. A retiree living on investment income, a wage earner with a family, and a business owner all face different effective tax rates in the same state.

Alaska and Nevada generally rank low in total tax burden because they have no income tax, no sales tax (Alaska), or low property tax (Nevada). Wyoming has no income tax and moderate property tax. However, someone who spends heavily on taxed goods or owns expensive property may pay more in these states than in a state with income tax but lower sales or property tax.

Florida and Texas have no income tax but higher property tax and sales tax. For a high-income earner, the savings from no income tax can still outweigh higher sales and property taxes. For a retiree on a fixed income, the calculation is different.

How income tax status affects your move or job decision

If you are relocating for work or retirement, the tax difference can be meaningful. A software engineer earning $150,000 per year would owe roughly $10,000 to $15,000 in state income tax in California or New York, but zero in Texas or Florida. Over a decade, that difference compounds.

However, moving costs money, and housing prices in no-income-tax states like Florida and Texas have risen sharply in recent years. You may recoup income tax savings through higher rent or property prices. Additionally, if you work remotely for a company in a high-tax state, some states still tax your income based on where your employer is located, not where you live — though this is becoming less common.

For retirees, the picture varies. If your income comes from Social Security, pensions, or retirement account withdrawals, some states tax these sources and others do not. Florida, for example, does not tax Social Security or most retirement income, which makes it attractive to retirees. Texas has no income tax at all. New Hampshire taxes investment income but not wages, which matters less to someone no longer working.

States that tax some income but not wages

New Hampshire is the only state in the no-income-tax group that taxes some forms of income. It imposes a 5 percent tax on interest and dividends but does not tax wages, salaries, or Social Security. This makes New Hampshire attractive to wage earners but less attractive to investors or retirees living on investment income.

A few other states tax only certain types of income. Tennessee taxes investment income but not wages. This distinction matters if you earn money from stocks, bonds, or rental property rather than from a job.

Tax considerations for remote workers and business owners

If you work remotely, your state tax obligation depends on where you live and where your employer is based. Most states now tax based on where you live, not where your employer is located. Moving to a no-income-tax state while working remotely for an out-of-state company usually means you owe no state income tax.

However, some states have tried to tax remote workers based on the employer's location. This practice is declining, but it is worth confirming with your employer or a tax professional before relocating.

Business owners face a different calculation. A sole proprietor or partner in a business pays income tax on business profits in their state of residence. Moving a business to a no-income-tax state can reduce your tax bill significantly. However, you must actually relocate the business operations and your residence — straightforward registering a business in another state does not change your tax obligation.

Frequently Asked Questions

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

Yes. Federal income tax applies everywhere in the United States, regardless of whether your state collects income tax. The nine no-income-tax states save you only on state income tax, not federal tax.

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

New Hampshire is typically grouped with no-income-tax states because it does not tax wages or salaries. However, it does tax interest and dividends at 5 percent. If most of your income comes from a job, New Hampshire functions like a no-income-tax state. If you live on investment income, you will owe state tax there.

If I move to a no-income-tax state, do I when ready stop paying income tax?

You stop owing state income tax once you establish residency in a no-income-tax state. Residency is usually established by obtaining a driver's license, registering to vote, or leasing or buying a home. However, your previous state may tax income you earned while still a resident there. Consult a tax professional about your specific situation.

Are no-income-tax states cheaper to live in overall?

Not necessarily. Housing costs, sales tax, and property tax vary widely. Florida and Texas have no income tax but rising housing costs. Alaska has no sales tax but high property tax in some areas. Compare your total tax bill and cost of living in both your current state and the state you are considering.

Can I claim residency in a no-income-tax state if I still own property in my old state?

Owning property in another state does not prevent you from establishing residency in a new state. However, your old state may still tax income from that property or claim you are still a resident for tax purposes. States use multiple factors — driver's license, voter registration, where you spend most of your time, and where your family lives — to determine residency. If you are moving for tax reasons, document your new residency carefully and consult a tax professional.