Nine states collect no state income tax on wages or salaries

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salary income. New Hampshire taxes only interest and dividend income, not wages, so for most workers it functions like a no-income-tax state. These nine states fund government operations through sales tax, property tax, excise taxes, and other revenue sources instead.

The absence of state income tax does not mean these states are cheaper overall. A state with no income tax often has higher sales tax or property tax to compensate. Whether living in a no-income-tax state saves you money depends on your income level, how much you spend, and what property you own.

Key Takeaways

  • Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
  • No-income-tax states typically charge higher sales tax or property tax, so the total tax burden may not be lower than in states with income tax.
  • If you move to a no-income-tax state, you may still owe income tax to your previous state for the portion of the year you lived there.
  • Retirement income, investment income, and business income are taxed differently in each state, so a no-income-tax label does not cover all types of earnings.

How these nine states replace income tax revenue

Alaska funds state operations primarily through oil revenue and a modest sales tax. The state has no statewide sales tax, but municipalities can impose local sales taxes ranging from 0% to 7.5%. Property taxes are also low in Alaska.

Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming rely heavily on sales tax. Sales tax rates in these states range from 4% (Wyoming) to 7.25% (Florida and Tennessee). Combined with local sales taxes, the total can reach 9% or higher in some cities. These states also collect property tax, though rates vary by county.

New Hampshire has no sales tax and no tax on wages, but it taxes interest and dividend income at 5%. Property taxes in New Hampshire are among the highest in the nation, averaging around 0.9% of home value annually.

Comparing total tax burden across state types

A worker earning $60,000 per year in a no-income-tax state does not automatically pay less tax than a worker in a state with income tax. The comparison depends on spending and property ownership.

If you spend $30,000 per year in a state with 7% sales tax, you pay $2,100 in sales tax. If you own a home worth $300,000 in a county with 1% property tax, you pay $3,000 in property tax annually. Combined, that is $5,100 per year. A state with 5% income tax on $60,000 would collect $3,000, leaving you ahead in the no-income-tax state—but only if you own property and spend heavily.

A renter earning $60,000 and spending $20,000 per year in the same no-income-tax state pays only $1,400 in sales tax and no property tax. That same person in a 5% income-tax state pays $3,000 in income tax. In this case, the renter is better off in the no-income-tax state, but the difference is smaller than it appears.

What happens to retirement and investment income

State income tax rules for retirement income vary widely, even among no-income-tax states. Some states exempt all retirement income; others tax it selectively.

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax no form of retirement income—not Social Security, not pensions, not 401(k) withdrawals, not IRA distributions. New Hampshire taxes interest and dividends but not Social Security or pension income.

If you receive investment income (interest, capital gains, dividends), check the specific state rules. Most no-income-tax states do not tax capital gains on the sale of stocks or real estate, but a few have exceptions. Tennessee taxes dividend and interest income at 1% to 2%, though it is phasing out this tax. New Hampshire taxes interest and dividends at 5%.

Moving to a no-income-tax state: what you owe your old state

If you move from a state with income tax to a no-income-tax state mid-year, you typically owe income tax to your previous state for the months you lived there. Your old state considers you a resident for the portion of the year you were present.

For example, if you earned $60,000 and lived in a 5% income-tax state for six months, then moved to a no-income-tax state for the remaining six months, you owe tax on roughly $30,000 to your old state (assuming even income distribution). You file a part-year resident return with that state and a resident return with your new state.

Some states also tax income earned within their borders even after you move away. If you worked remotely for a company based in your old state, that state may claim tax on your wages for the full year. Rules vary, so contact your old state's tax authority or a tax professional if you move mid-year.

Self-employment and business income 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. The federal government taxes all self-employment income regardless of state.

Some no-income-tax states impose other business taxes—gross receipts taxes, franchise taxes, or licensing fees—that function similarly to income tax. Texas, for example, has no income tax but charges a franchise tax on businesses with revenue above $1.23 million. Washington has no income tax but imposes a capital gains tax on long-term capital gains above $250,000 per year (as of 2022).

If you are self-employed or own a business, research your specific state's business tax rules. The absence of income tax does not may provide the lowest overall tax burden for business income.

States that recently changed or are considering changes

Tennessee and New Hampshire have moved toward eliminating their remaining taxes on investment income. Tennessee began phasing out its tax on dividends and interest in 2021 and plans to eliminate it entirely by 2026. New Hampshire has proposed legislation to eliminate its interest and dividend tax, though no change has been enacted.

No state with income tax has recently switched to no income tax, and no no-income-tax state has recently adopted income tax. Tax policy changes slowly and faces political resistance in both directions.

Frequently Asked Questions

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

No. You can live anywhere and manage your income strategically, but the tax savings are usually modest unless you earn a high income or own significant property. For most people, the difference between states is smaller than the difference between tax brackets or deduction strategies.

If I work remotely for a company in a high-tax state, do I owe that state's income tax?

It depends on your state's rules and your employer's location. Most states tax income earned by residents, regardless of where the employer is based. Some states tax nonresidents on income earned within the state. If you work remotely from a no-income-tax state for an employer in a high-tax state, you typically owe tax only to your home state (the no-income-tax state). Verify with both states' tax authorities.

Are property taxes lower in no-income-tax states?

Not necessarily. New Hampshire has no income tax but very high property taxes. Alaska has low property taxes but high sales taxes in some areas. Texas has no income tax and moderate property taxes, but rates vary by county. Compare the total tax burden—income, sales, and property—not just one category.

Does Social Security count as income in no-income-tax states?

No. All nine no-income-tax states and New Hampshire exempt Social Security from state taxation. You will not owe state income tax on Social Security benefits in any of these states, though you may still owe federal income tax depending on your total income.

What if I inherit money or receive a gift in a no-income-tax state?

None of the nine no-income-tax states or New Hampshire tax inheritance or gifts. The federal government does not tax gifts to individuals either. You inherit or receive gifts tax-free at the state level in all these states.