Five states have no income tax at all

Alaska, Florida, Nevada, South Dakota, and Texas do not tax wages, salaries, or investment income. Tennessee and New Hampshire tax only investment income, not wages. That means if you earn money from a job in one of these seven states, you keep more of your paycheck than you would in a state with income tax.

The difference is real. A person earning $60,000 a year in California pays roughly $2,500 in state income tax. The same person in Texas pays nothing. Over a decade, that is $25,000 more in your pocket — before accounting for what you might earn by investing it.

But no income tax does not mean no taxes. These states make up the lost revenue through sales tax, property tax, fuel tax, and other fees. Before you move, you need to know what you will actually pay.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, and Texas have zero income tax on wages; Tennessee and New Hampshire tax only investment income.
  • States without income tax typically charge higher sales tax (ranging from 5.5% to 7.25%) and property tax to replace lost revenue.
  • Your total tax burden depends on whether you earn wages, investment income, own property, or spend heavily on taxed goods.
  • Moving to a no-income-tax state saves money only if your new state's sales and property taxes are lower than your old state's combined income and property taxes.

How no-income-tax states replace the lost revenue

Alaska funds state services through oil royalties and a smaller sales tax (no statewide rate, but local rates range from 0% to 7.5%). Florida charges 6% sales tax and property tax. Nevada has 6.85% to 8.375% sales tax depending on the county, plus property tax. South Dakota charges 4.5% to 6.5% sales tax and property tax. Texas has 6.25% to 8.25% sales tax and property tax.

The math matters. If you spend $40,000 a year on taxed goods in Texas (groceries are exempt, but clothes, electronics, and restaurant meals are not), you pay roughly $2,200 in sales tax. Add property tax on a $300,000 home — about $3,000 a year in Texas — and you are at $5,200 total. In California, the same home and spending would cost you roughly $2,500 in income tax plus $3,000 in property tax: $5,500. Texas comes out ahead, but not by much.

The advantage grows if you earn investment income. Someone with $100,000 in stock dividends pays roughly $13,300 in California state tax but nothing in Texas. That is where the real savings appear.

Tennessee and New Hampshire: income tax on investments only

Tennessee taxes dividends and interest income at 3.75% to 4.75% but does not tax wages. New Hampshire taxes dividends and interest at 5% but does not tax wages. Both states are useful if you earn most of your money from a job and have little investment income.

Tennessee charges 9.55% sales tax (the highest in the nation) to offset the lost wage tax revenue. New Hampshire charges no sales tax but relies on property tax, which averages around $2,100 a year on a $300,000 home. If you own property and have little investment income, New Hampshire may cost less overall. If you spend heavily on goods, Tennessee may cost more.

States with the lowest income tax rates if you cannot move to a no-tax state

If you live in or are considering a state that does tax income, the lowest rates are in Colorado (4.63%), Illinois (4.95%), Indiana (3.15%), Kentucky (5%), Louisiana (2% to 6%), Mississippi (0% to 5%), Missouri (5.3%), and North Carolina (4.99%). These are not zero, but they are substantially lower than high-tax states like California (1% to 13.3%), New York (4% to 10.9%), or Vermont (3.55% to 8.75%).

The lowest-tax states are often paired with moderate sales tax and property tax, so your total burden may be lower than you expect. Indiana, for example, has 3.15% income tax, 7% sales tax, and moderate property tax — a reasonable combination for wage earners.

What moves you into a state's tax system

You become subject to a state's income tax when you establish residency, which usually means living there for more than half the year or claiming it as your permanent home address. Some states also tax people who work within their borders even if they live elsewhere — New York and New Jersey do this for commuters.

If you work remotely for a company in a high-tax state but live in a no-tax state, you typically pay tax only to your state of residence. But if you work in-person in a high-tax state and live in a no-tax state, you may owe tax to both. Check your specific situation with a tax professional before relying on this.

Property tax and sales tax vary widely within no-income-tax states

Alaska has the lowest property tax burden (averaging 1.1% of home value) because of oil revenue. Texas averages 1.8%. Florida averages 0.9% but has high insurance costs due to hurricanes. Nevada averages 0.6%. South Dakota averages 1.3%. Within each state, county and local rates vary — a home in one Texas county may cost 30% more in property tax than the same home in another county.

Sales tax also varies by county and city. Nevada ranges from 6.85% to 8.375%. Texas ranges from 6.25% to 8.25%. If you are considering a move, look up the exact rate for the county and city where you plan to live, not just the state average.

Frequently Asked Questions

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

No. If you work remotely and your employer does not require you to be in a specific state, you can move to a no-income-tax state and pay no state income tax on your wages. However, some employers adjust pay based on location, and moving may affect your cost of living in other ways.

If I retire in a no-income-tax state, do I pay less tax on my pension or Social Security?

It depends on the state. Alaska, Florida, Nevada, South Dakota, and Texas do not tax pensions or Social Security. Tennessee and New Hampshire do not tax Social Security but may tax pensions depending on the source. Check the specific state's rules before retiring there.

Can I claim residency in a no-income-tax state if I only own property there?

Owning property alone does not establish residency for tax purposes. You must live there for more than half the year or declare it as your permanent home address. Some states require a driver's license, voter registration, or utility bills in your name to prove residency.

What is the total tax burden in a no-income-tax state compared to a high-income-tax state?

It varies by your spending and property ownership. A wage earner with a modest home and low spending may pay 5% to 7% total tax in a no-income-tax state versus 8% to 10% in a high-income-tax state. Someone with high investment income or a valuable home may see a difference of 2% to 5% or more.

Do no-income-tax states have other hidden taxes?

Not hidden, but less visible. Most charge fuel tax (6% to 8% per gallon), vehicle registration fees, and sometimes taxes on specific goods like alcohol or tobacco. These add up but are usually smaller than income tax savings for wage earners.