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 work in one of these states or are a resident there, you will not owe state income tax on what you earn from a job.

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. This does not mean these states have no taxes at all — they fund schools, roads, and services through sales tax, property tax, corporate tax, and other sources.

The amount you save depends on your income and what you would have paid in a state with income tax. A person earning $60,000 in a state with a 5 percent income tax would owe $3,000 per year; in a no-income-tax state, that obligation does not exist. However, living in a no-income-tax state may mean higher property taxes or sales taxes to make up the difference.

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 does not mean no state taxes — these states rely on sales tax, property tax, and other revenue sources, which may be higher than in income-tax states.
  • Your federal income tax obligation remains the same regardless of which state you live in or work in.
  • If you move to a no-income-tax state mid-year, you may still owe income tax to your previous state on earnings before you moved.
  • Retirement income, Social Security, and pensions are treated differently in each state, so the tax advantage varies by income type.

How state income tax works when you move or work across state lines

If you move to a no-income-tax state partway through the year, you typically owe income tax to your old state only on the income you earned while living there. Your new state will not tax you on income earned after you establish residency. You will need to file a part-year resident return in your former state and a resident return in your new state.

If you work in a no-income-tax state but live in a state that does tax income, you usually owe tax to the state where you live, not where you work. However, some states have reciprocal agreements that change this rule — for example, Pennsylvania residents who work in New Jersey may not owe New Jersey tax. Check your specific state's rules if you cross a state line for work.

Your federal income tax obligation does not change based on which state you live in. You will still file a federal return and pay federal tax at the same rate as anyone else in your income bracket, regardless of whether your state has income tax.

Investment income and retirement accounts in no-income-tax states

Most of the nine no-income-tax states also do not tax capital gains, dividends, or interest. This means if you sell stock at a profit or receive dividend payments, you owe no state tax on that income in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming.

New Hampshire is different: it taxes interest and dividend income at 5 percent but does not tax wages. If you live in New Hampshire and earn investment income, you will owe state tax on that, even though you pay no tax on your salary.

Retirement accounts like 401(k)s and IRAs are not taxed by the state on the contributions you make, but withdrawals in retirement are treated as income. In no-income-tax states, those withdrawals are not subject to state income tax. In states with income tax, they are. This can make a significant difference in retirement planning if you are deciding where to retire.

Social Security and pension income in no-income-tax states

All nine no-income-tax states exempt Social Security benefits from state taxation. If you receive Social Security and live in one of these states, that income is not subject to state tax. This is true even in New Hampshire, which taxes other investment income.

Pension income is also exempt from state tax in most of these states. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax pensions. New Hampshire does not tax pensions either. This makes these states attractive for retirees who receive a pension from a former employer.

However, some states offer pension exemptions only to residents who retired before a certain date or who worked for specific employers. Check the rules in the state where you plan to retire, especially if your pension is from a government employer or if you retired many years ago.

Sales tax and property tax in no-income-tax states

States without income tax typically make up the lost revenue through higher sales tax or property tax. Tennessee and Washington have sales tax rates above 8 percent. Alaska has no state sales tax but allows local sales taxes. Property taxes vary widely — some no-income-tax states have low property taxes, while others are among the highest in the nation.

Before moving to a no-income-tax state for the tax savings, calculate your total tax burden. A state with no income tax but a 9 percent sales tax and high property taxes may cost you more overall than a state with a 5 percent income tax and lower property and sales taxes. The savings depend on your income level, how much you spend, and how much property you own.

Sales tax applies to most purchases of goods, though groceries and prescription medications are often exempt. Property tax is based on the assessed value of your home and land. Both are ongoing costs that add up over time.

Federal tax filing requirements do not change

Living in a no-income-tax state does not change your federal tax filing requirements. You must still file a federal return if your income exceeds the threshold set by the IRS, which varies by age and filing status. For 2024, a single person under 65 must file if their income is $14,600 or more.

You will report the same income and claim the same deductions and credits on your federal return as anyone else. The standard deduction, child tax credit, earned income tax credit, and other federal benefits explore the same way regardless of your state.

If you have income from multiple states, you may need to file returns in more than one state. A tax professional or the IRS website can help you determine which states require a return based on your specific situation.

Frequently Asked Questions

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

No. You must establish residency in the state to avoid its income tax. Residency typically means living there for more than half the year and having a permanent home there. straightforward working in a no-income-tax state while living elsewhere does not exempt you from your home state's income tax.

What happens to my taxes if I move from a high-income-tax state to a no-income-tax state?

You will owe income tax to your old state only on income earned before you moved. Once you establish residency in the new state, that state will not tax your income. You may need to file part-year resident returns in both states for the year you moved. Your federal tax obligation stays the same.

Are there any downsides to living in a no-income-tax state?

No income tax does not mean low overall taxes. Many no-income-tax states have higher sales tax, property tax, or both. You may also pay more for services or utilities. Compare your total tax burden in a no-income-tax state against your current state before deciding to move based on taxes alone.

Does New Hampshire really not tax wages?

Correct. New Hampshire taxes interest and dividend income but not wages or salaries. If you work in New Hampshire, you owe no state income tax on your paycheck. If you earn money from investments, you will owe New Hampshire's 5 percent tax on that income.

Will my federal refund be different if I live in a no-income-tax state?

No. Your federal refund depends only on your federal tax withholding and federal tax liability. Living in a no-income-tax state does not change how much federal tax you owe or how much you get back. However, you may get a larger overall refund because you have no state tax liability to offset it.