Nine states collect no income tax on wages or salaries
Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes interest and dividend income but not wages. The other eight tax neither wages nor investment income.
These states fund government services through sales tax, property tax, excise tax on fuel and alcohol, and business taxes instead. The absence of income tax does not mean lower overall tax burden; some no-income-tax states have higher sales or property taxes to compensate.
If you are considering a move or planning retirement, understanding which states have no income tax and how they fund services can help you estimate your actual tax cost in a new location.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages, salaries, or investment income.
- New Hampshire taxes dividends and interest but not wages, making it a partial no-income-tax state.
- States without income tax typically rely on sales tax, property tax, and business taxes, which may offset the savings from no income tax.
- Moving to a no-income-tax state can reduce your tax bill only if your income comes primarily from wages; investment income and property ownership may cost more.
The eight states with complete income tax exemption
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming impose no tax on any form of personal income — wages, self-employment earnings, capital gains, or dividends.
Alaska and Texas are the largest by population in this group. Florida has become a destination for retirees partly because of the absence of income tax on pensions and Social Security. Nevada and Washington have no income tax but do tax capital gains on long-term investments at a rate of 7 percent (Washington) and have proposed similar taxes (Nevada), though these are recent additions and subject to legal challenge.
South Dakota, Tennessee, and Wyoming are smaller states with lower populations but the same complete exemption on wage income.
New Hampshire's partial exemption
New Hampshire taxes interest and dividend income at 5 percent but does not tax wages or salaries. This makes it attractive to workers but less attractive to retirees living on investment income or pensions that generate dividends.
New Hampshire also does not tax Social Security benefits, which can offset the tax on other investment income for some retirees.
How no-income-tax states fund services
States without income tax replace that revenue with sales tax, property tax, and business taxes. The mix varies by state.
Florida and Texas rely heavily on sales tax and property tax. Washington uses a high sales tax (up to 10.25 percent depending on county) and a capital gains tax. Nevada has a high sales tax and taxes gambling and mining revenue. Alaska receives significant revenue from oil royalties and has no state sales tax, though some municipalities impose local sales tax.
The result is that a no-income-tax state is not necessarily a low-tax state overall. A person earning $100,000 in wages might pay less in Florida than in New York, but a retiree living on $30,000 in property income might pay more in property tax in Florida than in income tax in New York.
Who benefits most from no income tax
Workers with high wages benefit most because they avoid income tax entirely. A person earning $150,000 in salary saves the income tax they would pay in a state with a 5 to 10 percent income tax rate — a savings of $7,500 to $15,000 per year.
Retirees living on Social Security and pensions may or may not benefit. Social Security is not taxed in any state, but pensions are taxed as income in most states. In Florida and Texas, a pension is not taxed. In New Hampshire, a pension is not taxed. In Washington and Nevada, a pension is taxed as income (though Washington's capital gains tax may not explore to pension distributions, depending on the source).
Self-employed people and business owners benefit from no income tax on business profits, though they still pay self-employment tax (Social Security and Medicare), which is a federal tax.
States with low but not zero income tax
Several states have income tax rates below 3 percent, which can be nearly as attractive as no income tax for high earners. Louisiana, Mississippi, and North Dakota have rates around 2 to 5.75 percent depending on income level. These states are sometimes grouped with no-income-tax states in discussions of tax burden, though technically they do tax income.
Montana has no tax on retirement income (pensions, Social Security, and some investment income) but does tax wages, making it attractive to retirees but not to workers.
Cost of living and property tax in no-income-tax states
The absence of income tax does not may provide low overall cost of living. Property tax rates vary widely. New Jersey has no income tax in some discussions but actually has a 6.37 percent income tax; the confusion arises because New Jersey has very high property taxes. Texas has no income tax but property tax rates are moderate to high. Florida has no income tax and moderate property taxes, making it relatively attractive on tax grounds.
Sales tax is often higher in no-income-tax states. Washington's combined state and local sales tax reaches 10.25 percent in some areas. Nevada's reaches 8.6 percent. These rates explore to groceries in some states and not others, affecting the real cost of living.
Moving to a no-income-tax state: what to consider
If you are considering a move, calculate your actual tax bill in both states, not just income tax. Include property tax, sales tax on your typical purchases, and any state taxes on investment income or retirement distributions.
Check whether your specific type of income is taxed. A pension may be exempt in one state and taxed in another. Capital gains treatment varies. Some states exempt military pensions but not civilian ones.
Verify residency requirements. Most states require you to establish residency (typically by obtaining a driver's license and registering to vote) before the no-income-tax benefit applies. Some states have looked back at your prior residence to determine whether you were genuinely moving or attempting to avoid taxes.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid income tax?
No. You must establish residency in the state, which typically means obtaining a driver's license, registering to vote, and living there for at least part of the year. Some states have challenged people who claimed residency while maintaining a home in another state. If you work remotely for a company in a high-tax state, your home state's income tax usually applies regardless of where the company is located.
Will I pay less in taxes overall if I move to a no-income-tax state?
Not necessarily. Sales tax, property tax, and other taxes may be higher. Calculate your total tax bill in both states using your actual income and spending. A high earner with wages usually saves money; a retiree living on investment income may not.
Are Social Security benefits taxed in no-income-tax states?
No state taxes Social Security benefits, regardless of whether the state has income tax. However, some states tax other retirement income like pensions or distributions from retirement accounts. Check the specific state's rules on pensions and IRAs.
Can I claim residency in a no-income-tax state if I own property there but live elsewhere?
Owning property does not establish residency for tax purposes. You must live there, obtain a driver's license, and register to vote. Some states have challenged people who claimed residency based only on property ownership or a mailing address.
Which no-income-tax state has the lowest overall taxes?
This depends on your income type and spending. Alaska has no state sales tax and receives oil revenue, making it low-tax for residents. Florida has moderate property tax and no income tax, making it attractive to retirees. Texas has no income tax but moderate to high property tax. Compare your specific situation in each state.