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 also taxes interest and dividend income, but the other eight tax neither wages nor investment income. If you live or work in one of these states, you owe no state income tax on what you earn—though you still owe federal income tax to the IRS.

The absence of state income tax does not mean these states collect no revenue. Most fund schools, roads, and services through sales tax, property tax, corporate tax, or some combination. The tax burden straightforward falls on different activities than it does in states with income tax.

If you are considering a move or already live in a no-income-tax state, understanding how your state funds itself matters because it shapes what you pay overall and where that money comes from.

Key Takeaways

  • Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income instead).
  • No state income tax does not mean no state taxes—most no-income-tax states rely heavily on sales tax, property tax, or both to fund services.
  • If you move to a no-income-tax state, you still owe federal income tax and must file a federal return with the IRS.
  • Some states tax only certain types of income (like investment income) while exempting wages, creating different tax situations for different people.

How no-income-tax states fund schools and infrastructure

States without income tax typically rely on sales tax as their largest revenue source. Texas, Washington, and Tennessee all have sales tax rates above 8 percent. Florida's sales tax is 6 percent, but combined with local taxes it often reaches 7 to 7.5 percent. Alaska has no statewide sales tax but allows local sales taxes, and some boroughs charge up to 7.5 percent.

Property tax is another major funding source. New Hampshire, which has no income tax and no sales tax, funds schools and local services almost entirely through property tax—one of the highest property tax burdens in the nation. Wyoming and South Dakota also rely on property tax alongside sales tax.

Some states use corporate income tax or oil and gas revenue. Alaska funds a significant portion of its budget from oil royalties and corporate taxes. This means the overall tax burden in a no-income-tax state is not necessarily lower than in an income-tax state—it is straightforward distributed differently.

States that tax investment income but not wages

New Hampshire is the only no-income-tax state that taxes investment income. It imposes a 5 percent tax on interest and dividend income but does not tax wages, salaries, or retirement distributions. This creates a situation where a retiree living on investment income pays state tax, but a wage earner does not.

Tennessee previously taxed investment income but eliminated that tax in 2021. As of now, Tennessee taxes neither wages nor investment income, making it a true no-income-tax state.

What happens to your federal taxes if you live in a no-income-tax state

Living in a state with no income tax does not change your federal tax obligations. You still file a federal return with the IRS and pay federal income tax based on your income, filing status, and deductions. The IRS does not care what your state taxes—federal tax is separate.

If you work in a state with income tax but live in a no-income-tax state, you may owe 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 exempt residents of neighboring states, but you should verify the rules for your specific situation.

If you are self-employed or run a business, you still owe federal self-employment tax and federal income tax. A no-income-tax state does not exempt you from these federal obligations.

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

If you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, you do not file a state income tax return. You file only your federal return with the IRS. You will still need to report all income on your federal return, including wages, self-employment income, and investment income.

If you live in New Hampshire, you file a federal return and a state return reporting interest and dividend income only. Wages and salaries do not go on the New Hampshire return.

If you moved to a no-income-tax state during the year, you may owe tax to your previous state for the months you lived there. Contact that state's tax department or check their website to see whether you need to file a part-year return.

Comparing total tax burden across no-income-tax states

The amount you pay in state and local taxes varies significantly among no-income-tax states because they fund themselves differently. A person buying groceries and household goods pays more in sales tax in Washington (combined state and local rate often 8.5 to 10 percent) than in Alaska (no statewide sales tax). A homeowner in New Hampshire pays far more in property tax than a homeowner in Texas, even though both states have no income tax.

Your total tax burden depends on your personal situation: whether you own property, how much you spend on taxable goods, whether you have investment income, and whether you work in a different state. No single no-income-tax state is cheapest for everyone.

Moving to a no-income-tax state: what to know about residency

If you are considering moving to a no-income-tax state to reduce taxes, understand that most states define residency based on where you spend the most time, where you own a home, where you have a driver's license, or where you register your vehicle. straightforward claiming residency in a no-income-tax state while working and living elsewhere does not work—states audit residency claims.

If you move mid-year, you may owe tax to both your old state and your new state for the portions of the year you lived in each. Some states offer credits to prevent double taxation, but the rules vary. If you are planning a move, consult a tax professional about how it affects your filing obligations.

Frequently Asked Questions

Do I still owe federal taxes if I live in a no-income-tax state?

Yes. State income tax and federal income tax are separate. Living in a state with no income tax does not change what you owe the IRS. You file a federal return and pay federal tax based on your income, regardless of your state.

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

Most likely yes. States generally tax income earned within their borders, even if you live elsewhere. Some neighboring states have reciprocal agreements that may exempt you, but you should check the specific rules between your work state and home state.

Is it cheaper to live in a no-income-tax state?

Not necessarily. No-income-tax states fund services through sales tax, property tax, or both, which can be higher than in income-tax states. Your total tax burden depends on your spending, property ownership, and income sources, not just whether your state has income tax.

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages or salaries, but it does tax interest and dividend income at 5 percent. If you earn only wages, you owe no New Hampshire state tax. If you live on investment income, you do.

What if I moved to a no-income-tax state in the middle of the year?

You may owe tax to both your old state and your new state for the months you lived in each. Most states offer credits to prevent double taxation, but the process varies. Contact both states' tax departments or speak with a tax professional about your part-year filing obligations.