Nine states collect no income tax on wages, salaries, or investment income
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 it functions like a no-income-tax state for most workers. These nine states fund government services 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. Many have higher sales taxes or property taxes to compensate. A state with no income tax but a 9% sales tax may cost more than a state with 5% income tax and 6% sales tax, depending on what you buy and own.
If you are considering a move or changing your tax situation, understanding which state you live in and how it taxes income matters for your take-home pay. The difference between a 5% state income tax and zero can be hundreds of dollars per paycheck.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire impose no state income tax on wages.
- New Hampshire taxes investment income but not wages, making it effectively a no-income-tax state for most workers.
- States without income tax typically rely on sales tax, property tax, and corporate tax to fund services, which may offset the savings.
- Your actual tax burden depends on what you earn, what you buy, and what property you own in that state.
- Moving to a no-income-tax state can increase your take-home pay if you earn wages, but may cost more in other taxes.
The nine states with no wage income tax
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming impose zero state income tax on wages, salaries, tips, and other earned income. New Hampshire also taxes no wage income, though it does tax dividends and interest at 5%, so residents who live on investment income pay state tax while wage earners do not.
These states are spread across different regions and have different economies. Alaska and Texas are large and resource-rich. Florida and Nevada are popular retirement destinations. South Dakota, Tennessee, and Wyoming are smaller states. Washington is a major tech hub. The common thread is their choice to fund government without taxing wages.
How no-income-tax states pay for schools and roads
States without income tax must raise money another way. Most rely heavily on sales tax. Tennessee, Texas, Washington, and South Dakota all have sales tax rates of 6% or higher. Some also tax corporate income, which means businesses pay state tax even if individuals do not.
Property tax is another major source. Texas and Florida have no income tax but property taxes that vary by county. Alaska has no sales tax in most areas but funds services through oil revenue and property tax. Each state's mix is different, so the total tax burden on a resident depends on income, spending, and property ownership.
Schools and roads still exist in these states. They are funded through a different revenue stream than in states that tax income. A family that earns $60,000 in Florida and spends $30,000 on taxable goods pays sales tax on that spending. A family in a high-income-tax state might pay less in sales tax but more in income tax overall.
How much you save by living in a no-income-tax state
The savings depend entirely on your income. Someone earning $40,000 per year in a state with 5% income tax pays $2,000 in state income tax. In a no-income-tax state, that $2,000 stays in their paycheck. Someone earning $100,000 saves $5,000 per year.
However, that savings can disappear if you spend a lot or own property. A 7% sales tax on $30,000 in annual spending costs $2,100. A property tax of 1% on a $300,000 home costs $3,000 per year. A person who earns high income, spends heavily, and owns expensive property may pay more total tax in a no-income-tax state than in a state with moderate income tax and lower sales or property tax.
The real comparison requires looking at your specific situation: your income, your typical spending, and whether you own property. A high earner who spends little and owns no property benefits most from no income tax. A moderate earner who spends a lot may not.
States that tax only investment income, not wages
New Hampshire stands alone. It imposes no tax on wages, salaries, or tips. It does tax dividends and interest income at 5%. This means a person earning $50,000 in wages pays zero state income tax, but a person earning $50,000 in dividends pays $2,500.
This structure makes New Hampshire attractive to wage earners and retirees living on Social Security (which is not taxed in New Hampshire). It is less attractive to investors or people with significant passive income. New Hampshire also has no sales tax, which is unusual among states, but property taxes are relatively high.
How income tax varies by state
| State | Wage Income Tax | Investment Income Tax | Primary Alternative Tax |
|---|---|---|---|
| Alaska | 0% | 0% | Sales tax (0% statewide, varies by borough) |
| Florida | 0% | 0% | Sales tax (6%–7.5%) |
| Nevada | 0% | 0% | Sales tax (6.85%–8.375%) |
| New Hampshire | 0% | 5% | Property tax (varies by town) |
| South Dakota | 0% | 0% | Sales tax (4.5%–6.5%) |
| Tennessee | 0% | 0% | Sales tax (7%–9.55%) |
| Texas | 0% | 0% | Sales tax (6.25%–8.25%) |
| Washington | 0% | 0% | Sales tax (6.5%–10.25%) |
| Wyoming | 0% | 0% | Sales tax (4%–6%) |
What happens to your paycheck in a no-income-tax state
If you move from a state with 5% income tax to a no-income-tax state, your paycheck does not automatically increase. Your employer withholds based on where you work, not where you live. If you work in Florida and earn $50,000, you take home the full amount (minus federal tax and Social Security). If you work in New York and earn $50,000, your employer withholds roughly 5% for state income tax before you see the money.
The difference shows up in your annual tax return. In a no-income-tax state, you owe nothing to the state. In a high-income-tax state, you owe money or receive a refund depending on withholding. Over a year, the no-income-tax state resident keeps more of their gross pay.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. You benefit from no state income tax if you live and work in that state. If you live in Florida but work remotely for a New York company, you may owe Florida income tax depending on Florida's rules, or you may owe New York tax depending on where your employer is based. The rules vary by state and situation. Check with your state's tax authority or a tax professional if you are unsure.
Is it cheaper to live in a no-income-tax state?
Not always. A no-income-tax state often has higher sales tax or property tax. If you earn a high income and spend little, you save money. If you earn moderate income and spend a lot, you may pay more total tax. Compare the specific taxes in the state where you live or plan to move against your income, spending, and property ownership.
Does Social Security count as income in no-income-tax states?
No. Social Security is not taxed by any state, including no-income-tax states. This makes states like Florida and New Hampshire popular with retirees. However, other retirement income like pensions or 401(k) withdrawals may be taxed depending on the state.
Can I claim residency in a no-income-tax state if I work in another state?
You can live in a no-income-tax state, but you may still owe income tax to the state where you work. Most states tax income earned within their borders, regardless of where you live. Some states have reciprocal agreements that prevent double taxation. If you live in one state and work in another, consult a tax professional about your obligations.
What if I move to a no-income-tax state mid-year?
You owe income tax to your old state for the months you lived there and owe nothing to your new state for the months after you move. Your employer's withholding may need to change when you update your address. File a return in both states showing your income for each period. Some states offer credits to prevent paying tax twice on the same income.