States with no income tax on wages and retirement

Nine states collect no income tax on wages, salaries, or retirement income: 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. If you live or work in one of these states, you keep more of your paycheck than residents of states with income tax.

This does not mean these states have no taxes at all. They fund schools, roads, and services through other sources: sales tax, property tax, fuel tax, and business taxes. The mix varies by state. For example, Tennessee and Washington have high sales taxes to offset the missing income tax. Alaska has neither income nor sales tax statewide, but relies on oil revenue and property taxes.

Moving to a no-income-tax state can save money if you earn wages, but the total tax burden depends on how much you spend and own property. A retiree living on investment income might save more in one state than another, depending on whether that state taxes dividends or capital gains.

Key Takeaways

  • Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire—impose no tax on wage income.
  • No-income-tax states fund services through sales tax, property tax, and business taxes, so your total tax bill depends on spending and property ownership, not just income.
  • New Hampshire taxes investment income but not wages, making it a middle ground for some retirees.
  • Moving to a no-income-tax state saves money only if the sales and property taxes in that state are lower than the income tax you would pay elsewhere.

How no-income-tax states replace that revenue

States without income tax must raise money another way. Most rely heavily on sales tax. Tennessee and Washington have sales tax rates above 9 percent—among the highest in the nation. Florida's sales tax is 6 percent, but combined with local taxes it often reaches 7 to 7.5 percent. Texas has a 6.25 percent state sales tax plus local additions.

Property tax is another major source. Texas and Florida both have significant property taxes, though rates vary by county. Wyoming has low property taxes but high fuel taxes and mineral extraction taxes. Alaska, which has no sales tax, relies on property tax and oil revenue.

The point: a no-income-tax state is not a tax-free state. If you spend a lot or own property, you may pay as much in total taxes as you would in a state with income tax. A person who earns $100,000, spends $50,000 a year, and owns a modest home might save money in Florida. A person who earns $100,000 and spends $90,000 might not.

How residency and work location affect your tax bill

Your state of residency determines which income tax applies to your wages. If you live in Florida and work in Florida, you pay no state income tax. If you live in Florida but work remotely for a company in New York, you still pay no Florida income tax—but you may owe New York tax depending on New York's rules and your employment agreement.

Some states tax residents on income earned anywhere in the world, even if they work out of state. Others tax only income earned within the state. This matters if you are considering a move: working in a high-tax state while living in a no-income-tax state does not automatically save you money.

Retirement income—Social Security, pensions, and investment returns—is treated differently by each state. Some no-income-tax states exempt all retirement income. Others tax certain types. Tennessee, for example, taxes interest and dividend income but not wages or retirement account withdrawals. Understanding these rules is important if you are planning to retire in a particular state.

States with low income tax as an alternative

If you cannot move to a no-income-tax state, several states have income tax rates below 3 percent. Louisiana, Mississippi, and North Dakota all have low rates on wage income. Colorado, Indiana, Illinois, and Pennsylvania have flat tax rates between 3 and 5 percent, meaning everyone pays the same percentage regardless of income level.

Low-tax states may offer a middle ground: you pay some income tax, but less than in high-tax states like California, New York, or New Jersey. The trade-off is usually higher sales or property tax. Colorado, for instance, has a 4.4 percent income tax but moderate sales and property taxes.

Comparing states requires looking at your whole tax picture: income tax, sales tax, property tax, and how much you earn and spend. A tax calculator or conversation with a tax professional can show you the real difference between states for your specific situation.

Tax implications of moving to a no-income-tax state

If you move from a high-income-tax state to a no-income-tax state, you will not owe back taxes to your old state on income earned after you leave. However, you must establish residency in the new state. This usually means getting a driver's license, registering your vehicle, and establishing a permanent home address. Some states scrutinize moves carefully, especially if you own property in both places or maintain ties to your old state.

Your old state may challenge your residency claim if you still own a home there, work there part-time, or spend significant time there. If a state believes you are still a resident, it can demand income tax on wages you earned while living there. This is rare but happens. The safest approach is to make a clean break: sell or rent out property in your old state, update all documents, and establish clear residency in the new state.

Retirement accounts like 401(k)s and IRAs are not affected by state income tax in most cases. You can withdraw from these accounts in a no-income-tax state and owe nothing to that state. However, your old state may still try to tax the withdrawal if you were a resident when you earned the money. Again, this is uncommon but possible.

How to research tax rates in states you are considering

Start with your state's Department of Revenue website. Each state publishes its current income tax rates, sales tax rates, and property tax information. The Tax Foundation and the Federation of Tax Administrators maintain comparison charts, though these change yearly.

For a real picture, calculate your own taxes in each state. Use your actual income, spending, and property value. Many states offer tax calculators on their revenue websites. If you are retired or self-employed, the calculation is more complex—a tax professional in your target state can give you a clearer answer than a general guide.

Talk to people who have moved to the state you are considering. Online forums and local real estate agents can tell you about hidden costs: higher insurance, unexpected local taxes, or fees you did not anticipate. A move that saves $5,000 in income tax but costs $8,000 more in property tax is not a win.

Frequently Asked Questions

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

No. If you work remotely for a company in a no-income-tax state and live there, you benefit even if you were born elsewhere. However, your employer's location does not matter—only where you live and work. If you live in a high-tax state and work remotely for a company in Florida, you still owe income tax to your home state.

Will I owe taxes to my old state after I move?

Not on income earned after you move, provided you establish clear residency in the new state. However, your old state may challenge your move if you keep property there or spend significant time there. Update your driver's license, vehicle registration, and address on all documents to show you have left.

Are no-income-tax states cheaper to live in overall?

Not always. Florida and Texas have no income tax but high property taxes and sales taxes. Alaska has no income or sales tax but high property taxes and living costs. Compare your total tax bill—income, sales, and property—in each state using your actual numbers, not just income tax rates.

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

No. Social Security is not taxed by any state. However, some no-income-tax states do tax other retirement income like pensions or investment returns. Tennessee, for example, taxes interest and dividends but not Social Security or 401(k) withdrawals. Check your target state's rules on the specific income you will receive.

Can I claim residency in a no-income-tax state if I own a vacation home there?

Owning property does not make you a resident. You must live there as your primary home. If you own a vacation home in Florida but live in New York, you are a New York resident and owe New York income tax. However, your old state may still challenge your move if you keep a home there and spend time there regularly.