Nine states collect no income tax on wages or salaries

Nine states do not tax wages, salaries, or other earned income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes investment income and interest but not wages. The other eight tax neither wages nor investment income.

These states fund government services through other revenue sources: sales tax, property tax, corporate tax, excise tax on fuel and alcohol, and fees. The absence of income tax does not mean lower overall tax burden. Some no-income-tax states have higher sales taxes or property taxes that offset the savings for residents.

If you work remotely for a company in a state with income tax but live in a no-income-tax state, you generally owe tax only to your state of residence. The rules differ slightly by state, so checking your specific situation with a tax professional is worth the cost if your income is substantial.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax neither wages nor investment income.
  • New Hampshire does not tax wages but does tax interest and investment income at 5 percent.
  • No-income-tax states often rely on sales tax, property tax, and corporate tax instead, so total tax burden varies by state and by how you spend money.
  • If you work remotely and live in a different state than your employer, you typically owe income tax only to your state of residence.
  • Moving to a no-income-tax state for tax reasons makes the most sense if you have substantial investment income or retirement distributions.

How the eight states with no income tax at all operate

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming collect no tax on wages, salaries, capital gains, or dividends. These eight states fund schools, roads, and government operations through sales tax, property tax, corporate income tax, and specific excise taxes on items like gasoline, cigarettes, and alcohol.

Sales tax rates in these states range from 4 percent (Alaska) to 7.25 percent (Tennessee, Texas). Property tax varies widely within each state. Some counties in Alaska and Texas have low property tax; others in Tennessee and Washington have rates above 1 percent of home value. A resident who spends heavily on taxable goods may pay more in sales tax than they would have paid in income tax elsewhere.

Corporate income tax exists in most of these states, so businesses operating there still contribute to state revenue. The absence of personal income tax does not mean businesses pay nothing.

New Hampshire's partial exemption from income tax

New Hampshire does not tax wages, salaries, or self-employment income. However, it taxes investment income — interest, dividends, and capital gains — at 5 percent. This makes New Hampshire different from the other eight states and important to understand if you have retirement accounts or investment portfolios.

The interest tax applies to interest earned on savings accounts, bonds, and CDs. The dividend tax applies to stock dividends and mutual fund distributions. If your income comes entirely from wages and you have no significant investments, New Hampshire functions like the other no-income-tax states. If you live on investment income or have a large portfolio, the 5 percent tax on that income is a real cost.

New Hampshire funds state operations through sales tax (6 percent), property tax, and the interest and dividend tax. The state has no general sales tax on most goods, which offsets some of the investment income tax for residents who do not have substantial portfolios.

States with income tax but lower rates

If you cannot move to a no-income-tax state, several states have income tax rates below 3 percent. Louisiana, Mississippi, and North Dakota tax income at rates between 2 and 5.75 percent depending on income level. Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Pennsylvania, and Utah have flat income tax rates between 3.07 and 5.75 percent.

A flat tax rate means everyone pays the same percentage regardless of income. A graduated rate means higher earners pay a higher percentage. Neither system is inherently better — the total amount you owe depends on your income and how the brackets are structured.

These lower-tax states still collect sales tax and property tax, so comparing total tax burden requires looking at all three. A state with 3 percent income tax but 8 percent sales tax and high property tax may cost more overall than a state with 5 percent income tax and 5 percent sales tax.

How remote work affects your state tax obligation

If you work remotely and live in a different state than your employer, you owe income tax to your state of residence, not your employer's state. This is the general rule in all states. If you live in Florida and work remotely for a company in New York, you owe Florida income tax (none) and not New York income tax.

Your employer may initially withhold based on the state where the company is located. You will need to file a return in your home state and claim a credit for taxes withheld in the other state, or request that your employer change the withholding to your actual state of residence. This process varies by employer, so contact payroll to ask how to update your W-4 or equivalent form.

The exception is if you work in a state and live in another state temporarily. Some states tax you on income earned within their borders regardless of where you live. This applies mainly to people who work in-person in a state but maintain residence elsewhere. Remote workers are generally not subject to this rule.

Sales tax and property tax in no-income-tax states

The trade-off for no income tax is usually higher sales tax or property tax. Alaska has the lowest sales tax among the nine states at 4 percent, but some local jurisdictions add additional tax. Tennessee and Texas have 7.25 percent sales tax. Washington has 6.5 percent. South Dakota has 4.5 percent.

Property tax is where the variation becomes significant. Wyoming has some of the lowest property tax rates in the country, averaging around 0.61 percent of home value. Texas averages 1.8 percent. Tennessee averages 0.71 percent. These rates vary by county, so a specific property in a specific county may be higher or lower than the state average.

If you buy a home worth $300,000, the difference between 0.61 percent and 1.8 percent property tax is about $3,600 per year. Over a 30-year mortgage, that is a substantial difference. Checking the property tax rate in the specific county where you plan to live is more useful than looking at state averages.

Retirement income and no-income-tax states

Retirees often move to no-income-tax states to avoid tax on Social Security, pensions, and retirement account withdrawals. However, the rules vary. Some no-income-tax states exempt retirement income; others do not tax it because they do not tax any income.

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax retirement income because they do not tax any income. If you withdraw from a 401(k) or IRA in these states, you owe no state income tax on the withdrawal.

New Hampshire does not tax wages or retirement distributions from 401(k)s and IRAs, but it does tax interest and dividends. If your retirement income comes from a pension or retirement account withdrawal, you owe nothing. If it comes from a brokerage account or bonds, you owe 5 percent.

Moving to a no-income-tax state: what to consider

Moving for tax reasons makes sense only if the total tax savings exceed the cost of moving and the difference in cost of living. A state with no income tax but 8 percent sales tax and high property values may cost more overall than a state with 5 percent income tax and lower housing costs.

Calculate your actual tax burden in both states before deciding. If you earn $100,000 per year and spend $50,000 of it, your income tax in a 5 percent state is $5,000. Your sales tax in an 8 percent state on $50,000 of spending is $4,000. The difference is only $1,000 — not enough to justify moving if housing costs are higher.

Residency rules matter. Most states consider you a resident if you live there for more than half the year or maintain a permanent home there. Some states look at where you are registered to vote, where your driver's license is issued, and where you own property. If you move to a no-income-tax state but maintain a home in your old state, you may owe tax in both places. Consult a tax professional before making the move if your situation is complex.

Frequently Asked Questions

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

No. If you work remotely and live in a no-income-tax state, you owe no state income tax on your wages regardless of where your employer is located. You do not have to change your residency or move your home. However, you must establish residency in that state by living there and meeting the state's residency requirements, which usually means living there for more than half the year.

If I move to a no-income-tax state, do I owe tax to my old state?

Not if you establish residency in the new state and no longer maintain a permanent home in the old state. However, if you keep a home in your old state or spend significant time there, the old state may consider you a resident and tax your income. The rules vary by state. Consult a tax professional before moving if you own property in multiple states.

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages and salaries, but it taxes interest and dividends at 5 percent. If your income comes entirely from wages, you owe no state income tax. If you have investment income, you owe 5 percent on that income. It is a partial exemption, not a full one.

What is the highest sales tax in a no-income-tax state?

Tennessee and Texas both have 7.25 percent state sales tax, the highest among the nine no-income-tax states. Local jurisdictions can add additional sales tax on top of the state rate. Some counties in these states have combined sales tax rates above 9 percent.

Can I claim a tax credit if I work in one state and live in another?

Yes. If your employer withholds income tax for the state where the company is located, you can claim a credit on your home state tax return for taxes paid to the other state. This prevents double taxation. The process varies by state, so check your home state's tax authority website for instructions on how to claim the credit.