Nine states do not tax wages, retirement income, or investment gains

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire collect no state income tax on wages or investment income. New Hampshire taxes only dividend and interest income, not wages, so it functions as a no-income-tax state for most workers. These nine states fund schools, roads, and 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. A state with no income tax often has higher sales tax or property tax to compensate. Whether you pay less total tax depends on your income level, where you spend money, and what property you own.

Key Takeaways

  • Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
  • States without income tax typically charge higher sales tax, property tax, or both to fund government operations.
  • Your total tax burden in a no-income-tax state depends on how much you earn, spend, and own in property.
  • Moving to a no-income-tax state for tax reasons makes the most sense if you have high wages or investment income and plan to spend less than you earn.

How these states replace income tax revenue

Alaska funds government through oil royalties, corporate taxes, and a modest sales tax of around 0 percent (though some boroughs add local tax). The oil dividend is not a tax refund—it is a payment to residents from the state's oil fund, funded by past oil revenues.

Florida, Nevada, Texas, and Washington rely heavily on sales tax, which ranges from 6 to 10 percent depending on the state and local jurisdiction. Tennessee and South Dakota also use sales tax as their primary revenue source. Wyoming has the lowest sales tax of the group at 4 percent but makes up the difference with property tax and corporate tax.

All nine states tax corporate income, and most tax property. New Hampshire, which has no income tax on wages, taxes business profits and collects property tax. The mix varies: some states lean on sales tax, others on property tax or corporate tax. Your actual tax cost depends on which of these you pay most.

Comparing total tax burden across no-income-tax states

A high earner who spends little may pay less total tax in a no-income-tax state than in a state with income tax. A person earning $100,000 per year and saving half of it would avoid $5,000 to $10,000 in state income tax (depending on the state they left), but would pay the same sales tax as anyone else on what they spend.

A low-income worker or retiree living on a fixed income may pay more in sales tax and property tax than they would have paid in income tax elsewhere. Someone earning $30,000 per year and spending most of it faces a higher effective tax rate in a high-sales-tax state than in a state with progressive income tax.

Property owners in no-income-tax states often face higher property tax bills. Texas and New Hampshire have notably high property tax rates. If you own a home worth $300,000, the property tax difference between states can exceed $3,000 per year.

Which no-income-tax state has the lowest overall taxes

Alaska has the lowest overall tax burden for most residents because of its oil fund dividend and low sales tax. The dividend varies yearly but typically ranges from $1,000 to $2,000 per resident. Combined with a low sales tax, Alaska's total tax take is the lightest of the nine.

Wyoming ranks second for low overall taxes. It has a 4 percent sales tax (the lowest among the nine) and no income tax, though property tax is moderate to high. Wyoming has no corporate income tax either, which is unusual.

Nevada and South Dakota also rank low in total tax burden, though both have higher sales tax rates than Wyoming. The ranking shifts depending on your income level and spending habits, so comparing your specific situation matters more than a general ranking.

States that tax investment income or retirement income differently

New Hampshire taxes dividends and interest income at 5 percent but does not tax wages. This makes it attractive to wage earners but less so to retirees living on investment income or interest.

Tennessee and South Dakota tax dividends and interest but not wages. Like New Hampshire, they are designed to attract workers while taxing investment income. If you live on investment returns rather than wages, these states are less advantageous.

Alaska, Florida, Nevada, Texas, Washington, and Wyoming tax neither wages nor investment income. They are the truest no-income-tax states.

Tax implications of moving to a no-income-tax state

Moving to a no-income-tax state does not automatically lower your taxes. You must establish residency, which typically means living there for at least 183 days per year and obtaining a driver's license and voter registration. Some states have additional requirements.

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. Your old state may claim you were a resident for the full year if you owned property or had other ties there. Consult a tax professional before moving if you have significant income or assets.

Retirement income is treated differently by state. Some no-income-tax states exempt military pensions or public employee pensions from local tax even if they had income tax. If you receive a pension, check the specific state's rules before assuming you will pay no tax.

Frequently Asked Questions

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

Yes. State income tax and federal income tax are separate. All states are subject to federal income tax regardless of whether they have state income tax. A no-income-tax state only removes the state portion of your tax bill.

Is the cost of living lower in no-income-tax states?

Not necessarily. Housing, groceries, and utilities vary by region and city, not by tax policy. Some no-income-tax states like Florida and Texas have high housing costs in major cities. Cost of living depends on where in the state you live, not on the tax structure.

Can I claim residency in a no-income-tax state if I work remotely?

Yes, if you meet the state's residency requirements. Most states require you to live there at least 183 days per year. Your employer may still withhold taxes for your old state if you have not formally changed your address and residency. Update your driver's license and voter registration to establish residency.

Which no-income-tax state is best for retirees?

Florida and Texas are popular with retirees because they have no income tax and no tax on retirement income. However, property tax is high in both states. Alaska offers the lowest overall tax burden but has a harsh climate and higher cost of living in some areas. Compare property tax and sales tax rates for the specific city you plan to move to.

Do no-income-tax states have higher sales tax?

Usually, but not always. Wyoming has a 4 percent sales tax, the lowest of the nine. Alaska's sales tax is also low. However, Florida, Tennessee, and Washington have sales tax rates above 9 percent. The relationship between income tax and sales tax is not automatic—each state sets its own rates.