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 services through sales tax, property tax, corporate tax, and other revenue sources instead.
The absence of income tax does not mean these states are cheaper overall. Many have higher sales taxes or property taxes to compensate. A state with no income tax but a 9 percent sales tax may cost you more than a state with 5 percent income tax and 6 percent sales tax, depending on how much you earn and spend.
If you are considering a move for tax reasons, the math depends on your specific income, where you own property, and how much you spend. A retiree living on investment income faces different tax consequences than a salaried employee.
Key Takeaways
- Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income but not wages).
- States without income tax typically rely on sales tax, property tax, and corporate tax, so your total tax burden depends on your spending and property ownership, not just wages.
- Moving to a no-income-tax state does not automatically reduce your taxes if you have significant investment income, retirement accounts, or own real estate.
- Your state of residence for tax purposes is determined by where you live for most of the year, and changing it requires establishing a genuine move, not just claiming residency.
How states without income tax replace that revenue
States that do not tax income must fund schools, roads, courts, and other services through other sources. The most common replacement is sales tax, which ranges from 4 percent in Alaska to 7.25 percent in Tennessee and Texas. Some states also charge excise taxes on gasoline, alcohol, and tobacco at higher rates than income-tax states.
Property tax is another major revenue source. Texas, for example, has no income tax but property tax rates that average around 1.8 percent of home value annually—higher than many income-tax states. Wyoming and South Dakota also rely heavily on property tax. If you own a home, this cost can offset the income tax savings.
Corporate tax and business licensing fees also fund these states. Alaska generates significant revenue from oil taxes. Florida and Nevada rely on corporate income tax and tourism-related taxes. The point is that the money has to come from somewhere, and moving to a no-income-tax state does not mean you pay nothing in state taxes—it means you pay differently.
When a no-income-tax state actually saves you money
A no-income-tax state benefits you most if you earn a high salary and spend little relative to your income. A software engineer earning $200,000 per year who rents an apartment and buys little will save substantially by moving from California (13.3 percent top income tax) to Texas (no income tax). That same person saves roughly $26,600 per year on state income tax alone.
Retirees with pension or Social Security income may also benefit. Most no-income-tax states do not tax Social Security, and some do not tax pensions. If you receive $80,000 per year in pension income and move from a state with 5 percent income tax to Florida, you save $4,000 annually—assuming your property tax and sales tax do not rise enough to offset it.
The savings shrink or disappear if you own property. A $500,000 home in Texas with 1.8 percent property tax costs $9,000 per year in property tax alone. The same home in a state with 4 percent income tax and 0.8 percent property tax would cost $4,000 in property tax plus $20,000 in income tax on $500,000 in income—but that comparison only works if you actually earn that income and own that home.
States where investment income is taxed differently
New Hampshire is the exception among no-income-tax states. It taxes interest and dividend income at 5 percent but does not tax wages. This matters if you live on investment returns, inherited money, or rental income rather than a salary. A retiree with $100,000 in annual dividend income pays $5,000 in New Hampshire state tax but $0 in Florida or Texas.
Tennessee also taxes investment income but not wages, though at a lower rate than New Hampshire. If your income comes primarily from investments, pensions, or Social Security, check whether the state taxes those specific sources before assuming you will pay nothing.
Federal income tax applies in all states regardless. Moving to a no-income-tax state does not reduce what you owe to the IRS. You still file a federal return and pay federal tax on all income.
How to establish residency in a no-income-tax state
straightforward moving to a no-income-tax state does not automatically change your tax residency. You must establish domicile—the state where you intend to live permanently and where you have the most significant connections. The IRS and state tax authorities look at where you spend most of the year, where your family lives, where you own property, where you hold a driver's license, and where you are registered to vote.
If you own a home in your old state and rent in the new state, or if you spend half the year in each place, tax authorities may argue you remain a resident of your former state and owe income tax there. Some states, particularly California and New York, are aggressive about pursuing former residents who claim to have moved.
To establish residency credibly, obtain a driver's license and voter registration in the new state, lease or buy a home there, move your banking and financial accounts, and spend the majority of the year there. Keep records of where you are on specific dates, especially during the first year. If you work remotely for a company in your old state, notify them of your address change so your W-2 reflects your new state.
Tax implications if you work remotely for an out-of-state employer
If you move to a no-income-tax state but work remotely for a company in an income-tax state, you generally owe income tax only to your state of residence, not to the company's home state. Your employer should withhold based on where you live, not where the company is located. You will need to provide your new address and state to your employer's payroll department so they adjust your withholding.
However, some states have convenience doctrine rules that allow them to tax residents who work for out-of-state employers. This is rare and usually applies only to specific professions, but it is worth checking with a tax professional if you are moving across state lines for remote work.
If you are self-employed, you owe income tax to your state of residence. You also owe federal self-employment tax regardless of where you live. Moving to a no-income-tax state saves you state income tax but not federal tax or self-employment tax.
Comparing total tax burden across states
| State | Income Tax | Sales Tax | Property Tax (avg.) |
|---|---|---|---|
| Alaska | None | 0% (local varies) | 1.1% |
| Florida | None | 6% | 0.8% |
| Nevada | None | 8.2% | 0.6% |
| Texas | None | 8.2% | 1.8% |
| Washington | None | 10.2% | 0.9% |
This table shows why you cannot compare states on income tax alone. Washington has the highest sales tax among no-income-tax states. Nevada has the lowest property tax. Florida has moderate sales and property tax. Your actual cost depends on whether you rent or own, how much you spend, and how much you earn.
A high earner who rents benefits most from no income tax. A retiree who owns property may pay more in property tax than they save on income tax. A person with moderate income and moderate spending may see little difference between a no-income-tax state and an income-tax state with lower sales and property tax.
Frequently Asked Questions
Do I have to pay federal income tax if I move to a no-income-tax state?
Yes. Federal income tax applies in every state. Moving to Alaska, Florida, Texas, or any other no-income-tax state does not reduce your federal tax obligation. You still file a federal return and pay federal tax on all income. The only tax you avoid is state income tax.
Can I claim residency in a no-income-tax state if I only visit there occasionally?
No. Tax authorities require that you spend the majority of the year in the state and have genuine ties there—a home, driver's license, voter registration, and banking. If you spend half the year in another state or own a primary home elsewhere, you may not may have access to as a resident. Your old state can challenge your move and demand back taxes.
Is New Hampshire's tax on investment income higher than other states?
New Hampshire's 5 percent tax on interest and dividends is moderate compared to income-tax states, which tax investment income at their regular income tax rates (often 5 to 13 percent). However, if you live on wages and do not have significant investment income, New Hampshire's tax does not affect you.
If I retire and move to a no-income-tax state, will my pension be taxed?
Most no-income-tax states do not tax pensions or Social Security. Florida, Texas, Nevada, and Washington do not tax either. However, you may still owe federal income tax on pensions and some Social Security income depending on your total income. Check the specific state's rules before moving, as some states have exceptions for certain types of retirement income.
What happens if I move to a no-income-tax state but still own property in my old state?
You owe property tax on property you own in any state, regardless of where you live. Owning a rental property or vacation home in an income-tax state does not make you a resident of that state for income tax purposes. However, rental income from that property may be taxed by both your state of residence and the state where the property is located.