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 taxes only interest and dividend income, not wages. The other eight tax neither wages nor investment income.
These states fund government operations through sales tax, property tax, excise tax on specific goods, and business taxes instead. The absence of income tax does not mean these states have no taxes — it means the tax structure is different.
Whether living in a no-income-tax state saves you money depends on your income level, what you spend, and where you own property. A high earner in a state with no income tax but high sales tax may pay roughly the same total as someone in a state with income tax but lower sales tax.
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 only).
- No-income-tax states typically rely on higher sales taxes, property taxes, and business taxes to fund government services.
- Federal income tax applies in all states regardless of state income tax status, so moving to a no-income-tax state does not eliminate federal tax obligations.
- The total tax burden depends on your income, spending habits, and property ownership — not income tax alone.
- Retirees may benefit more from no-income-tax states if their income comes from pensions or Social Security rather than wages.
How no-income-tax states replace that revenue
States without income tax shift the tax burden to consumption and property. Sales tax rates in these states are often higher than the national average. Texas has a base sales tax of 6.25 percent; Washington's is 6.5 percent; Tennessee's is 7 percent. Some counties add local sales tax on top of the state rate.
Property tax also tends to be higher in no-income-tax states. Texas and Florida have relatively low property tax rates, but Wyoming and South Dakota use property tax more heavily. Alaska has no state sales tax but funds itself through oil revenue and property tax.
Business taxes and excise taxes on fuel, alcohol, and tobacco round out the revenue. The mix varies by state. Understanding the full tax picture requires looking at sales tax, property tax, and what you actually spend and own — not income tax alone.
Federal income tax still applies everywhere
Moving to a no-income-tax state does not reduce your federal income tax. The IRS collects federal tax in all 50 states at the same rates. Your federal return looks the same whether you live in Texas or California.
State income tax and federal income tax are separate. A state that does not collect income tax straightforward does not add a second layer on top of what you owe the federal government. You still file a federal return and pay federal tax.
Who benefits most from no-income-tax states
High earners benefit most when the state income tax rate is high in their current state. Someone moving from California (13.3 percent top rate) to Texas saves substantially on state tax. Someone moving from Pennsylvania (3.07 percent) to Texas saves less.
Retirees with income from pensions, Social Security, or retirement account withdrawals may benefit significantly. Many no-income-tax states do not tax Social Security or pension income, whereas some income-tax states do. A retiree living on $60,000 in Social Security and pension income in a no-income-tax state pays zero state income tax; the same person in New York or New Jersey may owe thousands.
People with low or moderate wages may not benefit if they spend heavily on taxable goods. A person earning $40,000 and spending $35,000 per year on taxable purchases in a state with 7 percent sales tax pays $2,450 in sales tax alone — more than many income-tax states would collect on that income.
State-by-state breakdown of the nine no-income-tax states
| State | Sales Tax | Property Tax (Typical) | Special Notes |
|---|---|---|---|
| Alaska | 0% state (local varies) | Low | Oil revenue funds much of government; no state sales tax but local taxes explore. |
| Florida | 6% | Low to moderate | No tax on Social Security or pensions; popular with retirees. |
| Nevada | 6.85% | Low to moderate | No tax on retirement income; gaming taxes fund much of state budget. |
| South Dakota | 4.5% | Moderate to high | Lowest sales tax of the nine; higher property tax compensates. |
| Tennessee | 7% | Low to moderate | Taxes interest and dividend income at 1% (Hall Income Tax); wages are exempt. |
| Texas | 6.25% | Low to moderate | Largest economy of the nine; no tax on retirement income. |
| Washington | 6.5% | Low to moderate | No tax on retirement income; capital gains tax on long-term gains over $250,000 (as of 2022). |
| Wyoming | 4% | High | Lowest sales tax; property tax is higher; no tax on retirement income. |
| New Hampshire | 0% | High | No sales tax; taxes interest and dividend income only (not wages); high property tax. |
How to calculate your actual tax burden
To compare your tax situation in two states, add up state income tax, sales tax on your typical annual spending, and property tax on your home. Ignore federal tax — it is the same in both places.
Start with income tax. In a no-income-tax state, this is zero. In an income-tax state, use your state's tax brackets and your income level to find the amount.
Next, estimate sales tax. Take your annual spending on taxable goods (groceries are often exempt; clothing, electronics, and services usually are not) and multiply by the state sales tax rate. If you spend $30,000 on taxable items in a state with 7 percent sales tax, you pay $2,100.
Finally, add property tax. Divide your home's value by 100 and multiply by the effective property tax rate. A $300,000 home in a state with a 1 percent effective rate costs $3,000 per year in property tax. The same home in a state with a 1.5 percent rate costs $4,500.
Add all three. The total is your state and local tax burden. Compare that number across states, not income tax alone.
Residency and tax filing when you move
Moving to a no-income-tax state does not change your tax status when ready. Most states consider you a resident for tax purposes once you establish a permanent home, register to vote, get a driver's license, or spend more than half the year there. The exact rules vary.
In your first year of moving, you may owe tax to both your old state and your new state for the portion of the year you lived in each. File a part-year resident return in both states. Your old state taxes income earned while you lived there; your new state taxes income earned after you moved.
Keep documentation of your move date, new address, and when you established residency. This protects you if either state questions your filing status.
Frequently Asked Questions
Do I have to file a state tax return in a no-income-tax state?
No, not for income tax. However, some no-income-tax states (Tennessee, New Hampshire) tax investment income and require a return if you have interest or dividends above a threshold. Check your specific state's rules. You always file a federal return regardless of state.
Can I claim a deduction for state taxes paid to another state?
Yes, if you moved mid-year and paid tax to your old state, you may deduct it on your federal return (up to $10,000 total for state and local taxes combined). Keep your old state's tax return and payment records.
Does Social Security count as income in no-income-tax states?
No. None of the nine no-income-tax states tax Social Security benefits. Some income-tax states do, which makes no-income-tax states particularly attractive to retirees. Verify the current rules for your specific state before moving.
What if I work remotely for a company in another state?
You typically owe tax to the state where you live and work, not where your employer is located. If you live in Texas and work remotely for a New York company, you file Texas taxes, not New York. Your employer should withhold based on your home state. Confirm this with your payroll department.
Is it worth moving just to avoid state income tax?
Only if the savings outweigh moving costs and other factors. For a high earner moving from a high-tax state, the savings can be substantial. For someone with low income or high spending, the difference may be small after accounting for sales tax and property tax. Consider housing costs, job market, and quality of life alongside taxes.