States with no income tax or the lowest income tax rates
Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire taxes only dividend and interest income, not wages, so it functions almost like a no-income-tax state for most workers. If you earn wages, these ten states will not take a cut from your paycheck.
Beyond the zero-tax states, several others keep income tax rates below 3 percent. Louisiana, Mississippi, and North Dakota all tax income at rates under 3 percent depending on your bracket. Montana, Idaho, and Pennsylvania also stay competitive, though their rates climb higher at upper income levels. The difference between a 2 percent rate and a 5 percent rate on a $50,000 salary is $1,500 per year — enough to matter if you are comparing where to live or work.
Income tax is only one piece of your total tax burden. A state with no income tax may make up the difference with high sales tax or property tax. Alaska, for example, has no income tax and no state sales tax, but property taxes vary widely by municipality. Texas has no income tax but charges a 6.25 percent state sales tax plus local additions that can push the total above 8 percent.
Key Takeaways
- Nine states charge no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
- States with no income tax often compensate with higher sales tax or property tax, so the lowest income tax does not always mean the lowest total tax burden.
- Your actual tax cost depends on whether you earn wages, investment income, own property, or make large purchases — different states tax these differently.
- Moving to a low-tax state saves money only if you actually relocate your residence and employment; you cannot claim a state's tax rate just by opening a business there.
Sales tax rates by state
Sales tax varies from zero to nearly 8 percent at the state level, and most states allow counties and cities to add their own tax on top. Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax. If you live in one of these states, you still may pay local sales tax depending on your county or city, but the state itself takes nothing.
States with the lowest combined state-plus-local sales tax include Colorado, Georgia, Hawaii, Louisiana, and Wyoming, where the average total hovers around 7 to 7.5 percent. States with the highest combined rates — California, Tennessee, and Arkansas — can exceed 9 percent when you add local taxes. The difference between 5 percent and 9 percent on $10,000 in annual purchases is $400.
Sales tax hits differently depending on what you buy. Most states exempt groceries and prescription drugs, so a family that spends heavily on food pays less sales tax than one that buys more taxable goods. Some states exempt clothing below a certain price point. If you spend $30,000 per year and half of that is groceries, your actual sales tax bill is much lower than the headline rate suggests.
Property tax rates and what they actually cost
Property tax is where state-level comparisons break down, because rates vary wildly within states. Hawaii and Alabama have the lowest average effective property tax rates in the nation — around 0.3 percent of home value. New Jersey and Illinois average above 2 percent. On a $300,000 home, the difference between 0.3 percent and 2 percent is $5,100 per year.
But "average" masks huge variation. In Texas, property tax rates range from under 0.5 percent in some counties to over 2 percent in others. In Florida, rates cluster between 0.7 and 1 percent, but your actual bill depends on your county and whether you may have access to for homestead exemptions. You cannot know your property tax cost without looking at the specific county where you plan to live.
Homestead exemptions and senior exemptions reduce property tax in many states. Florida exempts $50,000 of home value from taxation for primary residences. Texas allows homeowners to exempt up to 20 percent of home value. These exemptions can cut your bill by hundreds or thousands of dollars per year, but you have to claim them — they do not explore automatically. Check your county assessor's office for what exemptions you may may have access to for.
How to calculate your actual tax burden in a state
The state with the lowest income tax is not necessarily the state where you pay the least tax overall. You need to add up income tax, sales tax, and property tax based on your own situation. If you earn $60,000 in wages, own a $250,000 home, and spend $20,000 per year on taxable goods, your total tax bill in Florida looks different than in New York.
Start by finding your state's income tax rate for your income level — most state tax websites have a calculator or a rate table. Then multiply your expected annual purchases by the state-plus-local sales tax rate in the county where you plan to live. Finally, find the property tax rate for that specific county and multiply it by your home value, then subtract any exemptions you may have access to for. Add those three numbers together.
Tax Foundation and the Council on State Taxation both publish state tax burden comparisons, though they measure different things and reach different conclusions about which states are "lowest tax." Your personal tax burden depends on your income mix, what you own, and where in the state you live. A comparison that works for someone earning $100,000 in wages and owning a home will not work for someone earning $100,000 in investment income and renting.
States that tax investment income differently
If you live on investment income — dividends, capital gains, or interest — some states treat you much better than others. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax neither wages nor investment income. New Hampshire taxes investment income but not wages. If you are retired and living on a portfolio, these nine states are genuinely advantageous.
Other states tax investment income at the same rate as wages. Some states, like California, tax long-term capital gains as ordinary income, which can push your rate above 13 percent. A few states, like Pennsylvania, tax investment income at a flat rate lower than the top wage tax rate. If you are comparing states specifically because you have investment income, look at how each state treats capital gains and dividends, not just the wage tax rate.
Tax breaks and credits that vary by state
States offer different credits and deductions that can lower your actual tax bill. Some states offer earned income tax credits that mirror the federal credit and reduce what you owe. Others offer credits for child care, education, or property tax paid. A state with a higher headline tax rate but generous credits might cost you less than a state with a lower rate but no credits.
Military pensions, teacher pensions, and retirement income are taxed differently across states. Some states exempt military pensions entirely. Others exempt all retirement income above a certain age. If you are military or planning to retire, check whether your future income will be taxed in the state you are considering. A state that taxes pensions heavily can wipe out the savings from a low income tax rate.
Moving to a low-tax state: what actually counts
You cannot claim a state's tax rate just by opening a business there or buying property there. States tax based on residency and domicile. If you move to Florida to escape New York income tax, you have to actually move — change your driver's license, register to vote, move your household goods, and establish that Florida is your primary home. States audit people who claim residency in a low-tax state while maintaining a home and job in a high-tax state.
If you work remotely, moving to a low-tax state can work, but your former state may still claim you owe tax on income earned while you were a resident there. Some states have "convenience of the employer" rules that tax remote workers based on where the company is located, not where the worker lives. Check both your current state's rules and your new state's residency requirements before you move.
Frequently Asked Questions
Do I have to move to a low-tax state to benefit from its tax rate?
Yes. States tax based on residency, not on where you own property or do business. You must change your primary residence, driver's license, and voter registration to claim a new state's tax rate. States audit people who claim residency in a low-tax state while keeping a home or job in a high-tax state.
Which state is cheapest overall — income, sales, and property combined?
It depends on your income, what you own, and where in the state you live. Alaska has no income or state sales tax but varying property taxes. Wyoming has no income tax and low property tax but charges sales tax. For most people, the answer changes based on their specific situation. Use a tax calculator for your state and county to find your actual bill.
If I retire, do I still pay income tax in my home state?
That depends on the state and the source of your income. Some states exempt all retirement income. Others tax pensions but not Social Security. Some tax investment income but not wages. Check your state's rules on retirement income, military pensions, and Social Security before you retire or move.
Can I reduce my property tax bill?
Many states and counties offer homestead exemptions, senior exemptions, or disability exemptions that reduce the taxable value of your home. You usually have to claim these — they do not explore automatically. Contact your county assessor's office to find out what exemptions you may have access to for and how the process works.
What if my employer moves me to a different state mid-year?
You owe income tax to each state for the months you were a resident there. If you move from New York to Florida in July, you owe New York tax on income earned January through June and Florida tax on income earned July through December. File a part-year resident return in both states. Some states offer credits to avoid double taxation.