The states with the lowest overall tax burden

Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). Beyond those nine, the states with the lowest combined income and sales taxes are Montana, Oregon, and Louisiana, though the exact ranking shifts depending on whether you measure by income tax rate alone, sales tax alone, or total burden on a typical household.

The catch is that "lowest taxes" means different things depending on your income level and what you buy. A state with no income tax but high sales tax hits low-income households harder than high-income ones. A state with low income tax but high property tax may cost you more overall if you own a home. The real number that matters is what you will actually pay, given your specific situation.

Key Takeaways

  • Nine states collect no income tax from wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
  • States with no income tax often make up revenue through sales tax, property tax, or both, so the total tax burden depends on how you spend your money.
  • Your actual tax cost depends on your income level, whether you own property, and what you purchase—not just the headline tax rate.
  • Moving to a lower-tax state for tax reasons alone usually makes sense only if you are relocating anyway or have very high income.

How income tax rates differ across states

The nine states with zero income tax are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception—it taxes investment income and dividends but not wages, so if you work for a salary, you pay no state income tax there.

Among states that do tax income, the rates vary widely. Some states have a flat tax (one rate for everyone), while others use brackets (higher rates for higher incomes). Montana's top rate is 6.84 percent. Oregon's top rate is 9.9 percent. New York's top rate is 10.9 percent. California's top rate reaches 13.3 percent on the highest earners. The lowest taxing states with an income tax—like Montana, Louisiana, and North Dakota—still collect less in income tax per capita than high-tax states, but they are not zero.

Sales tax and what it costs you

States with no income tax typically rely on sales tax to fund schools and services. Alaska has no sales tax at all, but most other no-income-tax states have sales taxes between 5 and 7 percent. Tennessee's state sales tax is 9.55 percent when you add local taxes. Washington's combined rate is around 8.9 percent. Texas's combined rate is around 8.2 percent.

Sales tax hits differently depending on what you buy. If you spend most of your money on groceries, rent, and utilities—which are often exempt or taxed lower—your effective sales tax burden is lower. If you buy a lot of taxable goods and services, the burden is higher. A person earning $40,000 a year and spending most of it on necessities pays less in sales tax than someone earning $200,000 and buying luxury goods, even at the same rate.

Property tax varies as much as income tax

Property tax is the third major piece, and it varies enormously. Some states with low income tax have high property tax to compensate. New Jersey has no state income tax on retirement income, but its property tax rate is among the highest in the nation—around 0.8 percent of home value annually. Texas has no income tax, but property tax averages around 1.6 percent of home value. New Hampshire has no income tax on wages, but property tax is around 2.1 percent of home value.

By contrast, Hawaii has both income tax and sales tax, but property tax is very low—around 0.3 percent of home value. Louisiana has low income tax and low property tax. If you own a home, property tax often costs more than income tax, so ignoring it when comparing states will give you a false picture of your total burden.

How your income level changes the math

A state with no income tax saves a high-income earner much more in absolute dollars than it saves someone earning $50,000 a year. Someone earning $500,000 in California pays roughly $66,500 in state income tax. The same person in Texas pays zero income tax—a savings of $66,500. Someone earning $50,000 in California pays roughly $2,000 in state income tax. In Texas, they pay zero—a savings of $2,000.

But that high earner in Texas still pays sales tax and property tax on a larger total spending. And the lower-income person in Texas, who spends a higher percentage of their income on taxable goods, may actually pay a higher percentage of their income in total state and local taxes than they would in a state with income tax but lower sales and property taxes.

When moving for taxes actually makes financial sense

Moving to a lower-tax state purely to save on taxes rarely makes financial sense unless you are already relocating for work or family reasons. The costs of moving—real estate transaction fees, the time to sell and buy, the disruption to your career—usually exceed the tax savings unless you have very high income and plan to stay for many years.

The exception is retirement. If you are retired and no longer tied to a job location, moving to a state with no income tax on retirement income (like Florida, Texas, or Nevada) can save thousands per year with no career cost. Some states also exempt military pensions or teacher pensions from income tax, which can matter if that is your situation.

Remote work and tax residency

If you work remotely for a company in a high-tax state but live in a low-tax state, you generally pay tax in the state where you live, not where your employer is. However, some states try to tax residents who work remotely for out-of-state employers, and the rules are complex. If you are considering a move based on remote work, confirm with a tax professional whether the state you are moving to will tax your out-of-state income.

Also, if you move mid-year, you may owe taxes to both your old state and your new state for the portion of the year you lived in each. Some states are aggressive about pursuing former residents who claim to have moved away. Establishing residency in a new state usually requires more than just moving there—you may need to register to vote, get a driver's license, and show that you have severed ties with your old state.

Frequently Asked Questions

Do I pay taxes in the state where I work or the state where I live?

You pay income tax in the state where you live, not where you work. If you work in one state and live in another, you typically file in your home state. Some states have reciprocal agreements that prevent double taxation, but the rules vary. Confirm with your employer's payroll department which state they are withholding for.

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

You owe taxes to your old state only for the portion of the year you lived there. If you move on June 30, you owe income tax to your old state for January through June. You must file a part-year resident return in your old state and a part-year resident return in your new state. Some states are strict about verifying that you have actually moved.

What is the lowest-tax state overall?

Alaska is often cited as the lowest-tax state because it has no income tax, no statewide sales tax, and low property tax. However, Alaska's cost of living is very high, and some local areas have sales taxes. For someone relocating, the total cost of living matters more than the tax rate alone.

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages, but it does tax dividends and interest income at 5 percent. If your income is entirely from wages, you pay no state income tax. If you have investment income, you will owe tax on it. New Hampshire also has property tax and a sales tax.

Can I claim residency in a low-tax state if I only own property there?

No. straightforward owning property in a state does not make you a resident for tax purposes. You must actually live there, and most states require evidence like a driver's license, voter registration, and proof that you have severed ties with your previous state. Claiming false residency can result in penalties and back taxes.