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. The other eight tax neither wages nor investment income.

This does not mean these states have no taxes at all. They fund schools, roads, and services through sales tax, property tax, fuel tax, and other levies. A state with no income tax often has a higher sales tax or property tax to compensate. Moving to a no-income-tax state saves money only if your overall tax burden—across all types of taxes—actually falls.

Key Takeaways

  • Eight states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) tax neither wages nor investment income.
  • New Hampshire taxes investment income 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 instead, so your total tax bill depends on what you buy and own.
  • Federal income tax applies in all states regardless, so moving to a no-income-tax state does not eliminate federal withholding.
  • Retirees with pensions or Social Security may benefit more than wage earners, depending on the state's other taxes.

How no-income-tax states fund government services

A state without income tax must raise revenue another way. Most rely heavily on sales tax—the tax you pay at checkout. Washington has a sales tax of 6.5 percent statewide (higher in some counties). Tennessee's is 9.55 percent. These are among the highest in the country.

Property tax is another major source. Texas has no income tax but property taxes average around 1.6 to 1.8 percent of home value annually—higher than many income-tax states. Alaska has low property taxes but high fuel taxes and business taxes. Each state balances its revenue differently.

The point: you do not escape taxation by moving to a no-income-tax state. You shift which taxes you pay. If you earn $60,000 a year and spend most of it, a high sales tax hurts you more than a moderate income tax would. If you own a home worth $300,000, a high property tax bill may exceed what you would pay in state income tax elsewhere.

Which states tax investment income

Of the nine no-income-tax states, eight also do not tax capital gains, dividends, or interest. These are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you sell stock for a profit or receive dividend payments, you owe no state tax on that income in these states.

New Hampshire is the exception. It taxes interest and dividend income at 5 percent but does not tax wages. This makes it attractive to retirees living on investment income but less attractive to wage earners. New Hampshire also has no sales tax, which offsets the investment tax for some residents.

Federal capital gains tax still applies everywhere. A long-term capital gain is taxed by the federal government at 0, 15, or 20 percent depending on your income, regardless of which state you live in.

How federal income tax differs from state income tax

Moving to a no-income-tax state does not change your federal income tax. The federal government taxes all wages, salaries, and most investment income the same way in every state. Your employer will still withhold federal tax from your paycheck. You will still file a federal return with the IRS.

The only difference is that you will not file a state income tax return. If you currently live in a state that taxes income and you move to Texas or Florida, you stop paying state income tax but continue paying federal tax at the same rate. Your total tax bill falls only if the state's other taxes (sales, property, fuel) are lower than the state income tax you were paying before.

Who benefits most from no-income-tax states

High earners with large salaries benefit most because they avoid state income tax on substantial wages. Someone earning $150,000 a year saves thousands by living in Texas instead of California, which taxes income at up to 13.3 percent.

Retirees living on pensions or Social Security may also benefit, depending on the state. Most no-income-tax states do not tax pensions or Social Security. However, if you own a home, property tax becomes your main state tax burden. A retiree on a fixed income in a high-property-tax state like Texas may not save money overall.

Low-income workers and families who spend most of their income on goods and services may actually pay more in a no-income-tax state because sales tax is regressive—it takes a larger percentage of a poor household's income than a rich one's. Someone earning $30,000 a year who spends $25,000 on taxable goods pays 9.55 percent sales tax in Tennessee but might pay less in state income tax in another state.

Taxes you still pay in no-income-tax states

Even in states with no income tax, you pay federal income tax, property tax (if you own), sales tax (if you buy), and various other levies. Here is what does not disappear:

  • Federal income tax: Withheld from your paycheck and owed to the IRS, the same as everywhere.
  • Property tax: Owed annually on real estate you own. Rates vary widely by state and county.
  • Sales tax: Charged at checkout on most goods. Groceries are often exempt, but prepared food and services may be taxed.
  • Fuel tax: Added to the price of gasoline. Alaska's is notably high.
  • Business taxes: If you own a business, you may owe corporate or business income tax even in a no-income-tax state.
  • Estate and inheritance tax: Most no-income-tax states do not have these, but a few do.

The combination of these taxes varies by state and by your personal situation. A state with no income tax but high property tax may cost you more than a state with moderate income tax and low property tax, depending on whether you own real estate.

Comparing total tax burden across states

To know whether moving saves you money, compare your total tax burden, not just income tax. A person earning $80,000 a year and owning a $250,000 home should calculate state income tax (if any) on $80,000, property tax on $250,000 at the local rate, sales tax on estimated annual spending, and any other state-specific taxes.

Tax Foundation and similar organizations publish state tax burden comparisons, but they vary by income level and spending habits. A high earner with little property may save money in Texas. A retiree with a paid-off home may pay more in property tax than they saved on income tax. Run the numbers for your specific situation before deciding to move based on taxes alone.

Frequently Asked Questions

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

You must establish residency in the state, which typically means living there for at least 183 days per year and having a driver's license, voter registration, and permanent address there. straightforward owning property or working remotely for an out-of-state company does not count.

Does New Hampshire really have no income tax on wages?

Correct. New Hampshire taxes only interest and dividend income at 5 percent, not wages or salaries. It also has no sales tax, which makes it unique. However, property taxes are relatively high to compensate.

If I retire and move to Florida, do I pay tax on my pension?

Florida does not tax pensions, Social Security, or retirement account withdrawals. This makes it popular with retirees. However, you still pay property tax, sales tax, and federal income tax on any income subject to federal taxation.

Can I claim residency in a no-income-tax state if I work remotely?

Yes, if you establish true residency—a permanent home, driver's license, and voter registration in that state. Your employer may still withhold taxes based on where you work, not where you live, so you may need to file a return in both states and claim a credit. Consult a tax professional before moving for remote work.

Which no-income-tax state has the lowest overall taxes?

That depends on your income, property ownership, and spending. Alaska has low property taxes but high fuel taxes. Wyoming has low property taxes and low sales tax. Texas has moderate property taxes and sales tax. Compare your specific situation against the state's rates rather than looking for a single "lowest" state.