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 income from wages or salaries. New Hampshire also taxes interest and dividend income but not wages. These nine states fund government services through sales tax, property tax, corporate tax, and other revenue sources instead of taking a cut of what residents earn.

Living in a no-income-tax state does not mean you pay no taxes overall. Most of these states have higher sales taxes to make up the difference. For example, Tennessee has a 9.55% state sales tax, and Washington has 6.5%. You still pay federal income tax no matter where you live, and you may owe state tax if you work in a state that does tax income but live in one that does not.

The financial benefit of living in a no-income-tax state depends on your income level and spending habits. A high earner who spends little saves more than a low earner who spends everything. Someone who buys a house in a high-property-tax state like New Hampshire may not save money overall compared to a moderate-income-tax state with lower property taxes.

Key Takeaways

  • Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire—collect no tax on wages or salaries.
  • New Hampshire taxes interest and dividend income but not wages, making it different from the other eight.
  • No-income-tax states fund services through sales tax, property tax, and corporate tax, which may be higher than in income-tax states.
  • Your actual tax burden depends on your income, what you spend, and whether you own property, not just on income tax alone.
  • If you work in a state that taxes income but live in a no-income-tax state, you may still owe tax to your work state.

How each no-income-tax state funds government

Alaska funds state services primarily through oil revenue and corporate taxes rather than sales or income tax. This means Alaska has no state sales tax either, making it the only state with neither income nor sales tax. However, some Alaska cities and boroughs add local sales taxes on top.

Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all rely on sales tax as their main revenue source. Sales tax rates in these states range from 4% in Wyoming to 9.55% in Tennessee. They also collect property tax, corporate tax, and excise taxes on items like fuel and alcohol.

New Hampshire uses property tax and a "meals and rooms" tax (a 9% tax on restaurant meals and hotel stays) as major revenue sources. This structure means New Hampshire residents who cook at home and own property outright may have a different tax picture than those who eat out frequently or rent.

When you owe tax to a no-income-tax state you do not live in

If you live in a no-income-tax state but work in a state that taxes income, you typically owe tax to the state where you work, not where you live. For example, if you live in Florida and work in Georgia, Georgia will tax your wages even though Florida does not. You file a tax return in Georgia and may be able to claim a credit on your federal return for taxes paid to Georgia.

Some states have reciprocal tax agreements that let you avoid this double hit. If you live in Pennsylvania and work in New Jersey, New Jersey may not tax your wages under their reciprocal agreement. Check with your state's tax department or your employer's payroll office to find out whether a reciprocal agreement applies to you.

Remote workers face a different situation. If you live in a no-income-tax state and work remotely for a company in a state that taxes income, most states will not tax your wages because you perform the work in your home state. However, some states tax based on where the employer is located, not where you work. Ask your employer's payroll department which state they report your wages to.

Property tax and sales tax in no-income-tax states

Property tax varies widely among no-income-tax states. New Hampshire has the highest effective property tax rate among them, around 2.1% of home value. Texas and Wyoming have lower rates, around 0.6% to 0.8%. If you plan to buy a house, compare property tax rates in the specific county or city where you want to live, not just the state average.

Sales tax also differs by location within each state. Some cities and counties add local sales tax on top of the state rate. In Tennessee, for example, the state sales tax is 9.55%, but some counties add up to 2.75% more, bringing the total to over 12%. In Washington, the state rate is 6.5%, but local rates can push it to 10.9% in some areas.

Food and medicine are taxed differently in each state. Some no-income-tax states exempt groceries from sales tax (like Florida and Texas), while others tax them at the full rate (like Tennessee). If you have a large family or buy a lot of groceries, this difference adds up over a year.

Tax implications if you move to or from a no-income-tax state

When you move to a no-income-tax state mid-year, you owe income tax to your old state only for the months you lived there. If you moved from California to Texas in June, California taxes your income from January through May, and Texas taxes nothing for the full year. File a part-year return in California showing only the income earned while you were a resident.

Your old state determines residency based on where you lived on the last day of the year or where you spent most of the year. If you moved in December, you may still be considered a resident of your old state for the full year. Keep records of when you moved—lease end dates, utility shutoff dates, and driver's license change dates all help prove when you became a resident of your new state.

If you own rental property or a business in a state you moved away from, you may still owe tax to that state on the income from that property or business. Moving to a no-income-tax state does not erase tax obligations on out-of-state income sources.

Retirement income and no-income-tax states

Retirees often move to no-income-tax states to reduce their tax burden. However, the tax treatment of retirement income varies by state. Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax no retirement income at all—not Social Security, not pensions, not 401(k) withdrawals. Alaska and New Hampshire also exempt retirement income from their income tax (though New Hampshire taxes investment income).

This makes no-income-tax states attractive for people living on pensions or withdrawing from retirement accounts. However, remember that property tax and sales tax still explore. A retiree on a fixed income may pay more in property tax in New Hampshire than in a state with income tax but lower property tax.

Frequently Asked Questions

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

No. You benefit from no income tax only if you are a legal resident of that state. Residency is determined by where you live most of the year and where you intend to make your home. straightforward owning property or working in a no-income-tax state does not make you a resident for tax purposes.

If I work remotely for a company in New York but live in Florida, do I owe New York income tax?

Most likely no. New York taxes based on where you perform the work, not where your employer is located. Since you perform your work in Florida, New York should not tax your wages. However, confirm this with your employer's payroll department, as some companies report wages based on company location rather than work location.

Are there any hidden taxes in no-income-tax states I should know about?

No hidden taxes, but less obvious ones. Many no-income-tax states tax business income, rental income, and capital gains differently than wage income. Some tax intangible property or have inheritance taxes. Check the specific state's tax department website for details on what is and is not taxed.

Can I claim a tax credit if I pay income tax to one state but live in another?

Yes, but only if you live in a state that taxes income. If you live in Florida (no income tax) and work in Georgia (income tax), you owe Georgia tax and cannot claim a credit on your federal return because Florida does not tax income. If you live in a state that taxes income and work in another, you may be able to claim a credit for taxes paid to the work state.

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

No. All nine no-income-tax states exempt Social Security from state income tax. However, you still owe federal income tax on Social Security if your combined income exceeds certain thresholds, regardless of which state you live in.