Nine states have no income tax on wages or salaries

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax income from wages or salaries. This means if you work and earn a paycheck in one of these states, you will not owe state income tax on that money. However, "no income tax" does not mean no state taxes at all — these states use other revenue sources like sales tax, property tax, and business taxes to fund schools and services.

New Hampshire is a partial exception: it does not tax wages, but it does tax interest and dividend income at 5 percent. The other eight states tax neither wages nor investment income. If you are considering a move or evaluating your tax situation, understanding what each state does tax is as important as knowing what it does not.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
  • New Hampshire taxes investment income (interest and dividends) at 5 percent even though it does not tax wages.
  • States without income tax often rely on higher sales taxes, property taxes, or business taxes to fund government services.
  • Moving to a no-income-tax state can lower your tax burden if you earn wages, but may cost more in other taxes depending on your spending and property ownership.

How each no-income-tax state funds its government

Alaska funds state services primarily through oil revenue and a modest sales tax. The state has no statewide sales tax, but many municipalities charge local sales taxes ranging from 1 to 7.5 percent. Property taxes are also low compared to other states.

Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all rely heavily on sales tax. Florida's sales tax is 6 percent before local additions, which can bring it to 7.5 percent or higher. Washington has one of the highest sales tax rates in the nation at 6.5 percent statewide, plus local taxes that can reach 10.25 percent. These states also collect property tax and business taxes, though rates vary.

New Hampshire funds services through a 9 percent interest and dividend tax, property taxes, and a 9 percent business profits tax. It has no sales tax, which makes it unusual among no-income-tax states.

What types of income are still taxed in these states

In the eight states with truly no income tax (all except New Hampshire), investment income like interest, capital gains, and dividends are not taxed at the state level. However, you will still owe federal income tax on all of these types of income.

New Hampshire taxes interest and dividend income at 5 percent, so if you live there and receive investment income, you will file a state return for that purpose even though you have no wage tax. Capital gains are not taxed in New Hampshire.

Self-employment income and business profits are handled differently. In most no-income-tax states, sole proprietors and business owners do not pay income tax on their business earnings, but they may pay a separate business tax or gross receipts tax. Tennessee and Texas, for example, have business taxes that explore to certain types of business income. Check with your state's revenue department if you are self-employed.

How moving to a no-income-tax state affects your overall tax bill

Saving on state income tax does not automatically mean your total tax burden will drop. A person earning $60,000 in wages might save $3,000 to $5,000 per year in state income tax by moving to a no-income-tax state, but could pay more in sales tax if they spend heavily on taxable goods. Someone who owns a home may pay more in property tax in a no-income-tax state than in a state with income tax.

The math depends on your personal situation. If you earn most of your income from wages and spend little on taxable purchases, a no-income-tax state will likely reduce your taxes. If you receive substantial investment income, own property, or spend heavily on retail goods, the savings may be smaller or nonexistent. Use your state's tax calculator or speak with a tax professional to compare your specific situation.

Residency and how states determine if you owe tax

You owe state income tax based on where you live, not where you work. If you move to Florida but work remotely for a company in New York, you will not owe Florida income tax (because Florida has none), and you will not owe New York income tax either (because you are not a New York resident). You will owe federal income tax and possibly taxes to your home state if you still maintain residency there.

Some states consider you a resident if you spend more than half the year there, own a home there, or have a driver's license there. If you are moving to a no-income-tax state and still have ties to another state, clarify your residency status with both states' revenue departments. Claiming residency in a no-income-tax state while still being considered a resident elsewhere can create tax problems.

States that tax some income but not wages

A few states fall between the extremes. Illinois and Mississippi do not tax wages but do tax other income. Pennsylvania does not tax wages but taxes investment income. These states offer some of the same wage-tax benefits as the nine no-income-tax states, but residents still owe state tax on interest, dividends, and capital gains.

If you are comparing states, ask specifically whether the state taxes wages, investment income, and business income separately. A state that does not tax wages might still tax the income that matters most to you.

Federal taxes still explore in all states

No state can exempt you from federal income tax. Even if you live in Alaska or Texas and owe zero state income tax, you will still file a federal return and pay federal tax on all income — wages, investment income, and self-employment income. The federal tax rate depends on your income level and filing status, not on where you live.

Some people mistakenly believe that moving to a no-income-tax state eliminates all income tax. It does not. It only eliminates the state portion. Your federal obligation remains the same.

Frequently Asked Questions

Can I avoid all taxes by moving to Alaska or Texas?

No. You will still owe federal income tax on all your income. You will also owe sales tax on most purchases and property tax if you own a home. Moving to a no-income-tax state reduces your tax burden but does not eliminate taxes.

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages, but it taxes interest and dividend income at 5 percent. If your income comes entirely from a paycheck, you will owe no state income tax. If you receive investment income, you will owe state tax on that portion.

Which no-income-tax state has the lowest overall taxes?

That depends on your situation. Alaska has low sales tax and property tax but relies on oil revenue. Washington has high sales tax but low property tax. Compare your expected spending, property ownership, and income sources against each state's rates to find the best fit for you.

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

You owe tax to your state of residence, not your state of work. If you live in New York and work in Florida, you owe New York income tax. Some states offer credits for taxes paid to other states, so check with both your home state and your work state about how they handle this situation.

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

Yes. State income tax is based on residency. You must establish residency in the state — usually by moving there, getting a driver's license, and spending more than half the year there — to avoid income tax. straightforward working remotely for a company in a no-income-tax state does not change your tax obligation if you live elsewhere.