Nine states have no income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming collect no state income tax on wages. New Hampshire taxes only interest and dividend income, not wages, so residents who earn salary pay no income tax on that portion.
These nine states fund their operations through sales tax, property tax, excise taxes on fuel and alcohol, and other revenue sources. The absence of income tax does not mean these states are cheaper overall — many have higher sales taxes or property taxes to compensate. Alaska, for instance, has no state sales tax but charges property tax. Texas has no income tax but a 6.25 percent state sales tax plus local additions that can push the total above 8 percent.
If you are considering a move based on income tax alone, compare the full tax picture in your target state. A state with no income tax but 9 percent sales tax may cost you more than a state with 5 percent income tax and 6 percent sales tax, depending on whether you spend or save most of your earnings.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have zero state income tax on wages.
- New Hampshire taxes only investment income, not wages, making it effectively income-tax-free for salaried workers.
- States without income tax typically rely on higher sales taxes, property taxes, or excise taxes to fund services.
- Total tax burden depends on your spending and investment habits, not income tax rate alone.
- Some states with low income tax rates, like Montana and North Dakota, may cost less overall than no-income-tax states with high sales taxes.
States with the lowest income tax rates (below 3 percent)
Beyond the nine states with no income tax, several states charge rates below 3 percent on wages. Montana has a top rate of 6.84 percent but a lowest bracket of 1 percent on income under $3,200. North Dakota tops out at 5.54 percent with a lowest bracket of 1.1 percent. Louisiana has a top rate of 6 percent but a lowest bracket of 2 percent.
These low-tax states still charge property tax and sales tax. Montana has no state sales tax, which can offset the income tax for high spenders. North Dakota charges 5 percent state sales tax. Louisiana charges 4 percent state sales tax plus local additions that vary by parish.
Income tax brackets and rates change year to year. The figures above reflect 2024 rates, but you should verify current rates with the state revenue department before making a move decision.
How income tax brackets work in low-tax states
A state's "top rate" does not explore to all income. Most states use progressive brackets, meaning you pay different rates on different portions of your income. In Montana, you pay 1 percent on the first $3,200, then a higher rate on income above that threshold.
If you earn $50,000 in Montana, you do not pay 6.84 percent on all of it. You pay 1 percent on the first $3,200, then 2 percent on the next bracket, and so on, until your highest dollar is taxed at the rate for the $50,000 bracket. Your effective rate — the average rate you pay on all income — will be lower than the top rate.
When comparing states, look at the bracket that matches your income level, not the top rate. A state with a 6 percent top rate might cost you less than a state with a 5 percent top rate if most of your income falls in a lower bracket in the first state.
Sales tax and property tax in no-income-tax states
States without income tax shift the tax burden to consumption and property. Tennessee and Washington have no income tax but charge 9.55 percent and 10.25 percent combined state and average local sales tax, respectively. Texas averages 8.05 percent combined sales tax. Florida averages 7.01 percent.
Property tax varies widely even within no-income-tax states. Texas property tax averages 1.6 percent of home value annually, one of the highest in the nation. Florida averages 0.83 percent. Alaska averages 1.19 percent but has no sales tax, making it attractive for high spenders.
If you spend most of your income and own property, a high sales tax and property tax can exceed what you would pay in income tax elsewhere. If you save or invest most of your income, a no-income-tax state may save you money.
Tax implications for retirees and investors
Retirees and investors should pay attention to how each state taxes retirement income and capital gains. Tennessee and New Hampshire tax only interest and dividend income, not wages or retirement account withdrawals, making them popular with retirees who draw from pensions or 401(k)s.
Florida and Texas tax neither income nor capital gains, which benefits investors who sell stocks or real estate. Washington recently introduced a capital gains tax on long-term gains above $250,000, effective 2022, so investors with large portfolios should factor that in.
If your income comes primarily from Social Security, pension, or retirement account withdrawals, a state that does not tax those sources can save you thousands annually. If you earn wages, the same state's sales tax may offset that benefit.
How to calculate your actual tax burden by state
To compare states fairly, estimate your total state and local taxes under each scenario. Start with your expected annual income, then calculate:
- Income tax owed in each state, using that state's current brackets and rates.
- Sales tax on your expected annual spending (estimate 5 to 10 percent of income for most households).
- Property tax on your expected home value, using that state's average rate.
- Any other state-specific taxes, such as excise taxes on fuel or alcohol.
Add these three figures to get your total state and local tax burden. Compare the totals across states, not individual tax rates. A state with 5 percent income tax and 5 percent sales tax may cost less than a state with zero income tax and 10 percent sales tax, depending on your spending habits.
State revenue department websites publish current tax rates and brackets. Use those official figures rather than estimates from other sources, as rates change annually.
Moving to a low-tax state: what to know
Relocating for tax reasons requires more than finding a low rate. You must establish residency in the new state, which typically means living there for at least 183 days in a calendar year and registering to vote, obtaining a driver's license, and registering your vehicle there.
If you move mid-year, you may owe income tax to both your old state and your new state for the portion of the year you lived in each. Some states tax income earned while you were a resident, even if you move away later. Consult a tax professional in your target state before moving to understand how the transition will affect your tax bill.
Cost of living, job market, climate, and proximity to family often matter more than tax rate. A state with lower taxes but higher housing costs may not save you money overall.
Frequently Asked Questions
Do I pay federal income tax in states with no state income tax?
Yes. Federal income tax is separate from state income tax. Every state resident pays federal tax on wages, regardless of whether their state collects income tax. The federal government taxes all income above the standard deduction, currently $13,850 for single filers in 2024.
Can I claim a state income tax deduction on my federal return if I live in a no-income-tax state?
No. The federal deduction for state and local taxes (SALT) allows you to deduct state income tax, property tax, and sales tax, but only if you itemize deductions. If you live in a state with no income tax, you can deduct property and sales tax instead. The total SALT deduction is capped at $10,000 per year.
If I work remotely for a company in another state, which state's income tax do I owe?
You owe income tax to the state where you live and work, not the state where your employer is based. If you live in Texas and work remotely for a company in New York, you pay Texas income tax (zero) and not New York income tax. If you move to New York while keeping the same remote job, you then owe New York income tax.
Are there any downsides to living in a no-income-tax state?
No-income-tax states often have higher sales taxes, property taxes, or both to fund schools and services. Some have lower public school funding or fewer social services. Research the specific state's education system, healthcare access, and infrastructure before moving.
Does moving to a low-tax state save money if I'm retired?
It depends on your income sources. If you draw from a pension or 401(k), moving to a state that does not tax retirement income can save thousands annually. If you own property, higher property taxes in some no-income-tax states may offset those savings. Calculate your total tax burden in both states before deciding.