No state tax means some states don't collect income tax from residents on wages, investments, or retirement income

Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. If you live in one of these states, you don't file a state income tax return and your employer doesn't withhold state income tax from your paycheck. However, "no state income tax" doesn't mean these states collect no taxes—they fund schools, roads, and services through other sources like sales tax, property tax, and business taxes.

Two additional states—New Hampshire and Tennessee—tax only investment income and retirement distributions, not wages. So if you work for an employer in those states, no state tax comes out of your paycheck, but you may owe state tax on dividends, interest, or retirement account withdrawals.

Living in a no-income-tax state can mean more money in your pocket, but the total tax burden depends on what you buy, where you own property, and how you invest. A state with no income tax might have a higher sales tax or property tax that offsets the savings.

Key Takeaways

  • Nine states collect no income tax from residents on any type of income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
  • New Hampshire and Tennessee tax only investment and retirement income, not wages earned from employment.
  • No-income-tax states fund government services through sales tax, property tax, business taxes, and other revenue sources instead.
  • Your total state tax burden depends on sales tax rates, property tax, and investment income, not income tax alone.
  • If you move to a no-income-tax state or move away from one, you may owe taxes to your previous state on income earned before you left.

How no-income-tax states fund schools and infrastructure

States without income tax rely on sales tax as their primary revenue source. Florida, Texas, and Washington have sales tax rates between 5.5% and 10%, depending on the county. Every time you buy something—groceries, clothing, gas—a percentage goes to the state. Over time, this adds up, especially if you spend heavily on taxable goods.

Property tax is another major funding source. Alaska, for example, has no state income tax but collects property tax on real estate. If you own a home in a no-income-tax state, your annual property tax bill may be higher than in a state that taxes income. Texas and Florida have moderate property tax rates, while Wyoming and South Dakota keep property taxes low.

Some no-income-tax states also tax business income, corporate profits, and specific industries. Nevada taxes casino and gaming revenue. Alaska taxes oil and gas production. These sources help fund state budgets without taxing individual wages.

Whether you actually save money living in a no-income-tax state

The savings depend on your personal situation. If you earn a high salary and spend little, you save significantly by avoiding state income tax. A person earning $100,000 in California (which has a 9.3% state income tax) would owe roughly $9,300 in state income tax. The same person in Texas owes zero state income tax on wages—a real difference.

But if you own a home or spend heavily on retail, the advantage shrinks. Texas has no income tax but charges property tax around 1.6% of home value annually. A $300,000 home costs about $4,800 per year in property tax. Florida's property tax is similar. If you rent and spend little, you keep the full benefit. If you own property or buy a lot of taxable goods, other taxes offset the income tax savings.

Retirees on fixed incomes often benefit most from no-income-tax states, because they avoid taxes on Social Security, pensions, and retirement account withdrawals. However, New Hampshire and Tennessee tax retirement income, so those states offer less advantage for retirees.

What happens to your taxes if you move to or from a no-income-tax state

If you move from a high-income-tax state to a no-income-tax state, you stop owing state income tax on income earned after you move. However, you still owe taxes to your previous state on income earned while you lived there. If you left California on June 30 and earned $50,000 in the first half of the year, California taxes that $50,000 even though you now live in Texas.

Some states make this transition difficult by claiming you were still a resident longer than you actually were. If you move, keep documentation: a lease or deed showing your new address, utility bills in your name, a driver's license from the new state, and proof of employment. These records help if your previous state questions when you left.

Moving to a no-income-tax state doesn't affect federal income tax. You still file a federal return and owe federal tax on all income, regardless of where you live.

States that tax only certain types of income

New Hampshire taxes interest and dividend income at 5%, but does not tax wages. If you work for an employer in New Hampshire, your paycheck is not taxed by the state. But if you have a brokerage account, bonds, or rental property income, you owe New Hampshire tax on that money. This structure appeals to workers but not to investors or retirees living on investment returns.

Tennessee taxes investment income and retirement distributions the same way. Wages are untaxed, but dividends, interest, capital gains, and distributions from IRAs and 401(k)s are taxed at 6%. Tennessee is phasing out this tax gradually—it will eventually become a no-income-tax state entirely, but that transition takes several years.

If you live in either state and your income comes entirely from wages, you have the same advantage as residents of fully no-income-tax states. If you live on investment income or retirement withdrawals, you owe state tax even though wage earners do not.

How to file taxes if you live in a no-income-tax state

You do not file a state income tax return if you live in a no-income-tax state and have no income taxed by that state. You file only a federal return with the IRS. This simplifies your tax filing—one form instead of two.

However, you may still owe taxes to other states. If you worked in multiple states during the year, or moved mid-year, you may owe taxes to the state where you earned income. Some states also tax nonresidents on specific types of income. For example, if you own rental property in California but live in Texas, California taxes the rental income even though you don't live there.

If you're unsure whether you owe taxes to another state, contact that state's tax department or speak with a tax professional. State tax rules vary, and the rules for nonresidents are often different from the rules for residents.

Frequently Asked Questions

Do I still pay federal income tax if I live in a no-income-tax state?

Yes. Federal income tax is separate from state income tax. Everyone in the United States pays federal tax on income, regardless of which state they live in. Living in a no-income-tax state only saves you state tax, not federal tax.

If I move to a no-income-tax state, do I get a refund for state taxes I already paid?

No. You owe state tax on income earned while you lived in that state. Once you move, you stop owing tax on future income, but you don't get back taxes already paid. Your previous state keeps the money you already sent them.

Are there any hidden taxes in no-income-tax states?

No hidden taxes, but yes, other taxes. Sales tax, property tax, and business taxes are visible and explore to everyone. Some states also tax specific activities—Nevada taxes gambling winnings, for example. These are not hidden; they're just different from income tax.

Does living in a no-income-tax state help me avoid federal taxes?

No. Federal tax is the same everywhere. You cannot reduce your federal tax bill by moving to a different state. You can only reduce your state tax bill.

What if I work remotely for a company in a high-tax state but live in a no-income-tax state?

You owe tax to the state where you live, not where your employer is located. If you live in Texas and work remotely for a California company, you owe Texas tax (which is zero) and federal tax. You do not owe California state tax. However, some states have tried to change this rule, so check your state's current rules if you're in this situation.