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. This means if you live in one of these states and earn money from a job, you will not owe state income tax on that paycheck.

New Hampshire is a partial exception: it taxes interest and dividend income but not wages. The other eight states tax neither wages nor investment income. However, living in a no-income-tax state does not mean you pay no state taxes at all. These states fund government services through sales tax, property tax, excise tax on specific goods, and business taxes instead.

If you work in one state but live in another, the rules depend on where you earned the money. Most states tax income based on where you worked, not where you live, though some states have reciprocal agreements that change this. You will need to file a return in your work state even if you live in a no-income-tax state.

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 but not wages).
  • No-income-tax states use sales tax, property tax, and business taxes to fund services, so your overall tax burden depends on your spending and property ownership, not just income.
  • If you work in a state with income tax but live in a no-income-tax state, you typically owe tax to your work state, not your home state.
  • Moving to a no-income-tax state does not automatically reduce your taxes if you own property or spend heavily on taxed goods.

How no-income-tax states replace that revenue

States without income tax rely on other sources to pay for schools, roads, and government services. Sales tax is the primary replacement in most of these states. Texas, Washington, and Tennessee have some of the highest sales tax rates in the country, ranging from 8 to 10 percent depending on the city. Alaska has no statewide sales tax but allows cities to impose local sales tax.

Property tax is another major source. Texas and New Hampshire have notably high property tax rates to compensate for the lack of income tax. If you own a home in one of these states, your annual property tax bill may be substantially higher than in a state with income tax but lower property tax.

Some states also tax specific goods heavily. Washington taxes gasoline at a higher rate than most states. Tennessee and Florida impose higher excise taxes on items like alcohol and tobacco. Businesses in these states also pay corporate income tax or franchise taxes that do not explore to individuals.

What happens if you move between states

If you relocate from a state with income tax to one without, you will not automatically owe less in taxes overall. Your total state tax burden depends on what you own and what you buy, not just your income.

For example, moving from California (which has income tax) to Texas (which does not) saves you income tax but may cost you more in property tax and sales tax if you buy a house or spend heavily. A person earning $100,000 in California pays state income tax; the same person in Texas pays no income tax but will pay property tax on a home and sales tax on purchases. The net savings depends on your specific situation.

If you work in a state with income tax but live in a no-income-tax state, you will owe income tax to your work state. Some states have reciprocal agreements that exempt residents of neighboring states from income tax, but these are rare and explore only to specific state pairs. Check with your employer's payroll department about which state will withhold your taxes.

How to report income if you live in a no-income-tax state

If you live in one of these nine states and earn all your income within that state, you will not file a state income tax return. You will still file a federal return if your income exceeds the threshold set by the IRS each year.

If you earn income in multiple states, you must file a return in each state where you worked. For example, if you worked part of the year in Florida and part of the year in Georgia, you file a Florida return (which you may not owe tax on) and a Georgia return (which you will). Some states allow you to claim a credit for taxes paid to another state to avoid double taxation.

If you have investment income like interest, dividends, or capital gains, the rules vary. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax this income. New Hampshire taxes investment income but not wages. If you moved to one of these states and have investments, you do not owe state tax on the gains, but you still owe federal tax.

States that tax only investment income

New Hampshire stands apart because it taxes interest and dividend income but not wages or salaries. If you live in New Hampshire and earn $80,000 from a job, you owe no state income tax. If you earn $5,000 in dividend income, you owe tax on that $5,000.

Tennessee previously taxed investment income but eliminated that tax in 2021. As of now, Tennessee taxes neither wages nor investment income. This change made Tennessee fully aligned with the other eight no-income-tax states.

Comparing total tax burden across states

A state with no income tax is not automatically cheaper than a state with income tax. The total amount you pay in state taxes depends on your income, property ownership, and spending habits.

A person who rents an apartment and spends little on taxed goods may pay less in a no-income-tax state. A homeowner who buys a house in a high-property-tax state like Texas or New Hampshire may pay more overall than in a state with moderate income tax and lower property tax. Someone who spends heavily on sales-taxed items will feel the impact of high sales tax rates in states like Washington and Tennessee.

If you are considering moving for tax reasons, calculate your expected taxes in both states based on your actual income, property plans, and spending. The state with no income tax may not be the cheapest option for your situation.

What to do if you recently moved to a no-income-tax state

If you moved partway through the year, you may owe income tax to your previous state for the months you lived there. Most states tax based on residency: if you lived in the state on December 31, you owe tax on your full-year income. If you moved on June 30, you typically owe tax only for the income earned while you were a resident.

File a part-year resident return in your previous state if required. Your new state will not ask for a return if it has no income tax. Update your address with the IRS and your employer's payroll department so your W-2 is sent to the correct address and your withholding is adjusted for your new state.

If you owned property in your previous state, you may still owe property tax there even after you move. Contact the county assessor's office to remove your name from the tax roll or transfer ownership if you sold the property.

Frequently Asked Questions

Do I have to file a state tax return if I live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming?

No, if you live in one of these eight states and earned all your income within that state, you do not file a state income tax return. You still file a federal return if your income exceeds the IRS threshold. If you earned income in another state, you file a return in that state.

Does New Hampshire have income tax?

New Hampshire does not tax wages or salaries, but it does tax interest and dividend income. If you earn money from a job in New Hampshire, you owe no state income tax. If you earn income from investments, you owe tax on that income.

If I work in a state with income tax but live in a no-income-tax state, where do I pay tax?

You pay income tax to the state where you worked, not where you live. Your employer will withhold taxes for your work state. Some neighboring states have reciprocal agreements that change this, but they are uncommon. Check with your payroll department about which state will withhold your taxes.

Is moving to a no-income-tax state always cheaper?

Not necessarily. No-income-tax states use sales tax and property tax instead, which may be higher than in income-tax states. A homeowner in Texas or New Hampshire may pay more in property tax than they would have paid in income tax elsewhere. Compare your expected total taxes in both states before deciding to move.

What if I moved to a no-income-tax state partway through the year?

You may owe income tax to your previous state for the months you lived there. File a part-year resident return in your old state if required. Your new state will not require a return if it has no income tax. Update your address with the IRS and your employer.