Nine states collect no state 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 dividends and interest income but not wages. If you live or work in one of these states, you will not owe state income tax on your paycheck, though you will still owe federal income tax to the IRS.

The absence of state income tax does not mean these states collect no tax revenue at all. They fund schools, roads, and public services through sales taxes, property taxes, excise taxes on specific goods, and business taxes. The tax burden straightforward falls on different sources than in states with income tax.

Moving to a no-income-tax state or working remotely for an employer in one does not automatically free you from state taxes. Your tax obligation depends on where you live and where you work, not where your employer is based. If you live in a state with income tax but work for a company in Texas, you still owe tax to your home state.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries.
  • New Hampshire taxes investment income (dividends and interest) but not wages, making it a partial exception.
  • No-income-tax states fund government services through sales tax, property tax, and business taxes instead.
  • Your state tax obligation is based on where you live and work, not where your employer is located.
  • Moving to a no-income-tax state may lower your overall tax burden, but the effect depends on your income sources and spending habits.

How state income tax works in these nine states

In Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, you pay no state income tax on wages, bonuses, or self-employment income. If you receive a W-2 from an employer or file Schedule C as a self-employed person, that income is not subject to state tax in these states. The IRS still collects federal income tax, and you still file a federal return.

New Hampshire operates differently. It does not tax wages at all, but it does tax dividends, interest, and capital gains at a flat rate of 5 percent on the income itself (not the gains). If your income comes entirely from wages, you owe nothing to New Hampshire. If you receive investment income, you will owe state tax on that portion.

These states still require you to file a state return in some cases—usually if you have income from sources other than wages, or if you paid state tax through withholding. Check your state's tax authority website to confirm whether you must file.

Why these states have no income tax

The nine no-income-tax states made different choices about how to fund government. Some, like Alaska, have significant natural resource revenue—oil taxes and royalties provide a large share of the state budget. Others, like Florida and Texas, rely heavily on sales tax and property tax instead. Tennessee and New Hampshire historically chose not to implement income tax and have not changed that policy.

The choice to avoid income tax does not mean lower overall taxes. A state without income tax often has a higher sales tax or property tax to compensate. Florida has a 6 percent state sales tax (plus local additions), and Washington has a 6.5 percent state sales tax. Someone earning $50,000 in wages pays no state income tax in these states, but they pay sales tax on every purchase and property tax on any real estate they own.

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

States without income tax typically charge higher sales taxes to replace that revenue. Sales tax rates vary: Washington charges 6.5 percent at the state level, but local jurisdictions add their own tax, bringing the total to 8 or 9 percent in many cities. Florida's state sales tax is 6 percent, with local additions reaching 7 or 7.5 percent in most counties. Texas charges 6.25 percent at the state level, with local rates pushing the total to 8 or 8.25 percent.

Property tax also funds schools and local government in these states. Property tax rates vary widely within each state—a home worth $300,000 might cost $3,000 per year in property tax in one county and $6,000 in another, depending on local rates and assessment practices. Alaska and Wyoming have lower property tax rates than average, while New Jersey and Illinois (which do have income tax) have higher rates, so the comparison is not straightforward.

The total tax burden—income tax plus sales tax plus property tax—varies by individual circumstances. Someone with high income and low spending may pay less total tax in a no-income-tax state. Someone with low income and high spending may pay more.

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

If you move from a state with income tax to one without, you will not owe tax to your old state on income earned after you leave, but you may owe tax on income earned before you moved. Most states tax you based on where you lived when you earned the income. If you worked in California for nine months and then moved to Texas, you owe California income tax on those nine months of wages.

Some states require you to file a final return for the year you move. You may also need to update your withholding with your employer so they stop deducting state tax from your paycheck. Contact your old state's tax authority to confirm what you owe and whether you need to file.

If you move from a no-income-tax state to one with income tax, you will begin owing state income tax on wages earned in your new state. Your new employer will likely withhold state tax from your paycheck automatically. You may also owe tax on income earned in your old state if you worked there before moving.

Remote work and state tax obligations

If you work remotely for an employer based in a no-income-tax state but live in a state with income tax, you owe income tax to your home state, not to your employer's state. Your employer's location does not determine your tax obligation—your residence does. If you live in New York and work remotely for a company in Texas, you owe New York state income tax on your wages.

Some states have reciprocal agreements that reduce or eliminate tax on wages earned in a neighboring state. If you live in Pennsylvania and work in New Jersey, for example, New Jersey may not tax your wages. These agreements are state-specific, so check whether your home state and your employer's state have an agreement.

If you move to a no-income-tax state while working remotely, your tax obligation changes. Once you establish residency in that state, you no longer owe income tax to your previous state on wages earned after you move. You will need to update your address with your employer and may need to file a final return in your old state.

Investment income and retirement accounts in no-income-tax states

In most no-income-tax states, investment income—dividends, capital gains, and interest—is also not taxed at the state level. If you sell stock for a profit in Florida or Texas, you owe federal capital gains tax but no state capital gains tax. This can be a significant advantage for people with substantial investment income or those who trade frequently.

New Hampshire is the exception. It taxes dividends and interest at 5 percent but does not tax capital gains. If you receive $10,000 in dividend income, you owe $500 to New Hampshire. If you sell stock and make a $10,000 profit, you owe nothing to New Hampshire (though you owe federal tax).

Retirement accounts like 401(k)s and IRAs are treated the same way in no-income-tax states as in other states. Withdrawals from traditional IRAs and 401(k)s are not subject to state income tax in these states. Roth IRA withdrawals are never taxed, in any state. If you are considering retirement and want to minimize taxes, a no-income-tax state can be advantageous, especially if you have substantial retirement savings.

Business taxes and self-employment in no-income-tax states

Self-employed people and business owners in no-income-tax states do not pay state income tax on business profits, but they still owe federal self-employment tax and federal income tax. A freelancer earning $60,000 in Texas owes no state income tax on that income but still owes federal tax and self-employment tax to the IRS.

Some no-income-tax states impose other business taxes instead. Washington charges a capital gains tax on long-term capital gains above a certain threshold. Tennessee taxes business income at a rate of 3.75 percent, though this is scheduled to be phased out. Texas has a franchise tax on certain businesses. These taxes are typically lower than state income tax would be, but they do exist.

If you are starting a business, check your state's specific rules about business taxes, licensing fees, and other obligations. The absence of income tax does not mean zero business taxes.

Frequently Asked Questions

Do I still have to file a federal tax return if I live in a no-income-tax state?

Yes. State income tax and federal income tax are separate. Even if your state does not tax wages, the IRS still does. You must file a federal return if your income exceeds the threshold set by the IRS for your filing status, regardless of which state you live in.

If I work in a state with income tax but live in a no-income-tax state, which state do I owe?

You owe tax to the state where you live, not where you work. If you live in Florida and work in Georgia, you owe Georgia income tax on your wages. Florida does not tax your income because you are a resident there. Some states have reciprocal agreements that change this, so check your specific states.

Does New Hampshire really not tax wages at all?

Correct. New Hampshire does not tax wages, salaries, or self-employment income. It does tax dividends and interest income at 5 percent. If all your income comes from wages, you owe no New Hampshire state tax.

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

Not necessarily. While you save on income tax, you may pay more in sales tax and property tax. The total tax burden depends on your specific situation—your income level, how much you spend, and whether you own property. Someone with high income and low spending may save money; someone with low income and high spending may pay more.

What if I move mid-year from a state with income tax to a no-income-tax state?

You owe income tax to your old state on income earned while you lived there. If you worked in California from January through June and then moved to Nevada, you owe California income tax on those six months of wages. You owe nothing to Nevada on that income. File a final return with your old state and update your withholding with your employer.