Which states have no income tax

Nine states collect no income tax on wages, salaries, or investment returns: 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. The other eight tax neither wages nor investment income.

These states fund their operations through other revenue sources: sales tax, property tax, excise taxes on fuel and alcohol, and business taxes. The absence of state income tax does not mean lower overall tax burden—some of these states have higher sales or property taxes to compensate.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages or investments.
  • New Hampshire taxes investment income and interest but exempts wages from state income tax.
  • States without income tax typically rely on sales tax, property tax, and excise taxes to fund services.
  • Moving to a no-income-tax state can reduce your state tax burden, but your total tax picture depends on your income type and spending habits.
  • Federal income tax applies in all states regardless of whether your state collects income tax.

How states without income tax fund services

States that do not collect income tax must raise revenue another way. Most rely heavily on sales tax—the tax you pay at the register when you buy goods. Texas, Washington, and Tennessee have some of the highest state sales tax rates in the country, ranging from 8.25 percent to 9.55 percent depending on local additions.

Property tax is another major source. Florida and Texas, despite having no income tax, collect substantial property taxes on real estate. Alaska funds much of its budget through oil revenue and a permanent fund dividend paid to residents from oil investments. South Dakota and Wyoming use a mix of sales tax, property tax, and excise taxes on fuel, alcohol, and tobacco.

The point: you may pay less in state income tax but more in other taxes. A person earning $100,000 in wages might save money in Texas compared to California, but someone who spends heavily on retail goods or owns property may not see the same benefit.

Federal income tax still applies everywhere

State income tax and federal income tax are separate. The Internal Revenue Service collects federal income tax in all 50 states. Living in Alaska or Texas does not reduce what you owe to the federal government.

Your federal tax return is the same whether you live in a state with income tax or without. State income tax is an additional layer that only applies in states that have chosen to collect it. If you move to a no-income-tax state, you will still file a federal return and pay federal tax.

New Hampshire's partial income tax

New Hampshire taxes interest income and dividend income at 5 percent but does not tax wages or salaries. This makes it different from the other eight no-income-tax states. If you earn money from investments—bonds, stocks, rental property—you owe New Hampshire tax on that income. If you earn a paycheck, you do not.

New Hampshire funds its state budget partly through this investment tax and partly through property tax, which is among the highest in the nation. For someone living on investment returns, New Hampshire is not a true no-income-tax state. For someone with wage income, it functions like one.

Who benefits most from no-income-tax states

High earners with wage income benefit most clearly. A person earning $200,000 in salary saves the full state income tax by moving from a high-tax state like California (13.3 percent) or New York (6.85 percent) to Texas or Florida. That can mean $15,000 to $26,000 per year in state tax savings.

The benefit shrinks for people with lower incomes or those who spend heavily on taxable goods. Someone earning $40,000 in wages saves less in absolute dollars. Someone who buys a house in a no-income-tax state may face a higher property tax bill that offsets the income tax savings.

Retirees living on Social Security and investment income may or may not benefit, depending on the state. Florida and Texas do not tax Social Security, making them attractive to retirees. New Hampshire taxes investment income, so retirees living on dividends and interest would owe state tax there.

Tax residency and moving considerations

Changing your state of residence for tax purposes requires more than just moving. States define residency based on where you spend most of your time, where you own property, where you hold a driver's license, and where your family lives. If you move to Texas but keep a home in New York and spend half the year there, New York may still claim you as a resident and tax your income.

Some states are aggressive about pursuing former residents who move away. California, for example, has audited people who relocated to Nevada or Texas, arguing they maintained California residency. Establishing residency in your new state requires documentation: a new driver's license, voter registration, utility bills in your name, and ideally a lease or deed showing your primary residence.

If you are considering a move primarily for tax reasons, consult a tax professional or CPA in your state before relocating. The rules vary by state and by your personal situation.

Sales tax and cost of living in no-income-tax states

Most states without income tax compensate with higher sales tax. Washington has a 6.5 percent state sales tax plus local additions, reaching 10.25 percent in some cities. Tennessee's state sales tax is 9.55 percent. These rates explore to most purchases, including groceries in some states.

The effect on your wallet depends on how much you spend. Someone who earns $150,000 and spends $50,000 per year on taxable goods pays roughly $4,750 in sales tax in Washington. The same person in California would pay no state sales tax on that $50,000 (California has 7.25 percent sales tax, but let's say they spend less in California due to cost of living). The income tax savings in Washington—roughly $9,000 to $12,000 depending on deductions—still outweigh the sales tax cost.

For someone who spends $100,000 per year on taxable goods, the sales tax burden grows. The calculation becomes more complex and depends on your specific income, deductions, and spending patterns.

Frequently Asked Questions

Do I have to move to a no-income-tax state to benefit from no state income tax?

Yes. You must establish residency in the state—typically by moving your primary residence there, getting a driver's license, registering to vote, and spending most of your time there. straightforward working remotely for a company in a no-income-tax state while living elsewhere does not exempt you from your home state's income tax.

If I work remotely for a company in Texas but live in New York, do I pay Texas or New York income tax?

You pay New York income tax. Your state of residence, not your employer's location, determines which state taxes your wages. You would owe New York income tax on your full salary. Texas has no income tax, but that does not protect you if you live elsewhere.

Are property taxes higher in no-income-tax states?

It varies. Florida and Texas have moderate property tax rates compared to the national average, but they are higher than some income-tax states. New Hampshire has among the highest property taxes in the nation. Alaska and Wyoming have lower property taxes. Research the specific state and county where you plan to live.

Does Social Security count as income in no-income-tax states?

No state income tax means no state tax on Social Security in those states. However, you still owe federal income tax on Social Security if your combined income exceeds certain thresholds. Some no-income-tax states like Florida and Texas explicitly exempt Social Security from any state tax, making them popular with retirees.

Can I claim residency in a no-income-tax state if I own a second home there?

Owning property alone does not establish residency. You must show that the property is your primary residence—where you spend most of your time. States look at driver's license address, voter registration, utility bills, and time spent in the state. If you own a vacation home in Florida but live primarily in New York, you remain a New York resident for tax purposes.