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 taxes only interest and dividend income, not wages, so residents who earn paychecks pay no state income tax at all. The other eight states tax nothing that comes from work.
These nine states make up their tax revenue differently — through sales tax, property tax, corporate tax, or some combination. The trade-off varies by state. Some have higher sales taxes to compensate; others rely more heavily on property tax or business taxes. A state with no income tax is not automatically cheaper to live in overall.
If you work remotely for a company in another state, you typically owe income tax to the state where you live and work, not the state where your employer is based. Some states with income tax have reciprocal agreements with neighbouring states, meaning you may owe tax only to your home state. The rules depend on where you live and where your employer is located.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
- New Hampshire taxes investment income but not wages, so wage earners there pay zero state income tax.
- States without income tax fund government services through sales tax, property tax, corporate tax, or other sources, which may be higher than in income-tax states.
- If you work remotely, you owe income tax to your state of residence, not your employer's state, with some exceptions for border workers.
How these states replace income tax revenue
Alaska funds state services primarily through oil revenue and a modest sales tax. The state has no statewide sales tax, but many municipalities charge local sales tax ranging from 0% to 7.5%. Property taxes are also low in Alaska.
Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all rely heavily on sales tax, which ranges from 5.45% in South Dakota to 7.25% in Tennessee. These states also collect property tax and corporate tax. Washington has a capital gains tax on certain investment sales, though not on wages.
New Hampshire funds schools and services through a 5% tax on interest and dividend income, a 9% tax on business profits, property tax, and a 9% sales tax on most goods. Wages are exempt entirely.
What happens if you move to a no-income-tax state
If you relocate your residence to one of these nine states, you stop owing income tax to your previous state once you establish residency in the new one. Most states require you to show a driver's license, voter registration, or lease agreement to prove you live there. The timing matters: some states consider you a resident when ready upon moving; others look at where you spent more than half the year.
Your previous state may still try to collect tax if you leave behind property, a business, or significant income sources there. If you own rental property in your old state, for example, you may owe tax on that rental income even after you move. The rules vary by state and by the type of income involved.
If you work remotely and move to a no-income-tax state while your employer remains in a state with income tax, you owe tax only to your new state of residence. Your employer will stop withholding for your old state once you update your W-4 form and provide proof of your new address.
Remote work and state income tax
During the pandemic, many states temporarily allowed remote workers to avoid paying income tax on wages earned while working from home in another state. Most of those temporary rules have ended. Now, the general rule is that you owe income tax to the state where you perform the work — which is usually where you live.
If you live in a no-income-tax state and work remotely for a company in a state with income tax, you owe nothing to the company's state. You pay tax only to your home state, which has no income tax. This is one reason remote workers sometimes relocate to these nine states.
Some states with income tax have reciprocal agreements with neighbouring states. If you live in one state and work in another, you may owe tax only to your home state. These agreements exist mainly between states that border each other — for example, between Pennsylvania and New Jersey. Check your state's tax department website to see if your situation qualifies.
Comparing total tax burden across states
A state with no income tax does not necessarily have a lower overall tax burden. Someone earning $60,000 a year might pay less total tax in a no-income-tax state with high sales tax than in a state with moderate income tax and low sales tax. The difference depends on how much you earn, how much you spend, whether you own property, and what type of income you receive.
Sales tax hits lower-income households harder because they spend a larger share of their earnings on taxable goods. Property tax affects homeowners more than renters. Investment income is taxed differently in each state. A financial planner or tax professional in your state can compare your specific situation to a no-income-tax state if you are considering a move.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
Yes, you must establish residency there. straightforward working in a no-income-tax state while living elsewhere does not exempt you from your home state's income tax. You need to move your residence, update your driver's license and voter registration, and meet your new state's residency requirements — usually 183 days per year or more.
If I work remotely for a company in California but live in Texas, do I owe California income tax?
No. You owe income tax to Texas, your state of residence, which has no income tax. Your employer will withhold based on your Texas address. You do not owe California tax on wages earned while living and working in Texas, even if your employer is based there.
Does New Hampshire really have no income tax?
New Hampshire has no tax on wages or salaries. It does tax interest and dividend income at 5%, and it taxes business profits at 9%. If you earn only a paycheck, you pay zero state income tax in New Hampshire.
Can my old state still tax me after I move to a no-income-tax state?
Your old state can tax income you earned while you lived there, even after you move. If you own property, a business, or rental income in your old state, you may owe tax on that income. Once you move and establish residency in a new state, you stop owing tax on wages earned after the move date.
Which no-income-tax state has the lowest overall taxes?
That depends on your income, spending, and property ownership. Alaska has low sales tax and property tax but relies on oil revenue. Texas and Florida have moderate sales tax and property tax. Compare your specific situation — income level, home price, and spending habits — to see which state would cost you less in total taxes.