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, salaries, or self-employment. New Hampshire taxes only interest and dividend income, not wages. These nine states fund government services through sales tax, property tax, excise tax, and other revenue sources instead.

The absence of income tax does not mean these states are cheaper overall. Many have higher sales taxes or property taxes to compensate. A state with no income tax but a 9 percent sales tax may cost more than a state with 5 percent income tax and 6 percent sales tax, depending on how much you earn and spend.

If you are considering a move for tax reasons, the math depends on your specific income, spending habits, and whether you own property. A high earner benefits more from no income tax than a retiree living on a fixed income.

Key Takeaways

  • Nine states impose no tax on wage income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only).
  • States without income tax typically charge higher sales tax or property tax, so the total tax burden depends on your income level and spending patterns.
  • Federal income tax applies in all states regardless of state income tax status.
  • Some states tax retirement income, investment income, or business income differently, so moving for tax reasons requires comparing your specific situation.

How these nine states replace income tax revenue

Alaska funds government through oil revenue, sales tax, and property tax. The state also distributes oil dividend payments to residents, though these are not large enough to offset the lack of income tax for most people.

Florida, Nevada, Texas, and Washington rely heavily on sales tax. Florida's sales tax starts at 6 percent and can reach 7.5 percent with local additions. Washington has no sales tax on groceries but taxes most other goods at 6.5 to 10.25 percent depending on location.

Tennessee and South Dakota use sales tax as their primary revenue source. Tennessee exempts groceries from sales tax but taxes other items at 9.55 percent statewide. South Dakota's sales tax is 4.5 percent, one of the lowest in the nation, but the state also taxes business income.

Wyoming has the lowest sales tax at 4 percent and funds the remainder through property tax, excise taxes on fuel and alcohol, and business taxes.

New Hampshire taxes investment income but not wages

New Hampshire stands apart because it taxes interest and dividend income at 5 percent but does not tax wages, salaries, or self-employment income. This structure benefits wage earners and retirees living on Social Security but not those with significant investment portfolios.

New Hampshire has no sales tax and a relatively low property tax compared to neighboring states. The state funds services through business taxes, meals and rooms tax (9 percent on restaurant food and hotel stays), and other sources.

Federal income tax applies everywhere

State income tax and federal income tax are separate. The nine states listed above do not collect state income tax, but the federal government collects federal income tax from residents of all 50 states. Your federal tax obligation does not change based on where you live.

When you file taxes, you file both a federal return and a state return (if your state has income tax). In states with no income tax, you file only the federal return for income tax purposes.

Retirement income treatment varies by state

Some states without income tax still tax retirement income, military pensions, or Social Security. Tennessee and New Hampshire tax retirement income from certain sources. Tennessee taxes income from IRAs and 401(k)s but not Social Security or military pensions. New Hampshire does not tax Social Security but does tax interest and dividends.

If you are planning to retire and move to a no-income-tax state, check the specific rules for your type of retirement income. A state with no income tax may still tax your 401(k) withdrawals or pension payments.

Comparing total tax burden across states

A state with no income tax is not automatically cheaper. Consider all taxes together: income tax, sales tax, property tax, and excise taxes. A person earning $100,000 per year and spending $40,000 annually will pay different total taxes in different states.

In a state with 5 percent income tax and 6 percent sales tax, that person pays $5,000 in income tax plus $2,400 in sales tax, totaling $7,400. In a state with no income tax but 9 percent sales tax, they pay $3,600 in sales tax. The no-income-tax state is cheaper in this scenario. But if property taxes are much higher, the advantage shrinks or disappears.

The Tax Foundation and state revenue departments publish tax burden comparisons. Your own calculation should include your income level, estimated spending, and property value in the state you are considering.

Moving to a no-income-tax state for tax reasons

Establishing residency in a new state requires more than moving your belongings. Most states define residency based on where you spend the majority of the year, where you have a permanent home, and where you register your vehicle and obtain a driver's license. Some states also look at where you maintain employment or business operations.

If you work remotely for a company in a high-tax state but move to a no-income-tax state, you generally owe income tax to the state where you work, not where you live. Some states have reciprocal agreements that change this rule. Check with a tax professional in both your current and target state before moving.

Timing matters. If you move mid-year, you may owe income tax to both states for the portion of the year you lived in each. Some states offer credits to prevent double taxation, but the rules are complex.

Frequently Asked Questions

Do I still pay federal income tax if I live in a state with no income tax?

Yes. Federal income tax is separate from state income tax and applies to all U.S. residents regardless of state. Living in Alaska, Florida, Nevada, or any other no-income-tax state does not reduce your federal tax obligation.

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

That depends on your income and spending. Wyoming has the lowest sales tax at 4 percent, but property taxes vary by county. Alaska has oil dividends but higher property taxes in some areas. Compare your specific situation using state tax calculators or a tax professional.

Can I move to a no-income-tax state mid-year and avoid state taxes?

Not usually. Most states tax income earned while you were a resident. If you move mid-year, you typically owe income tax to your old state for the months you lived there and to your new state only if it has income tax. Some states offer credits to prevent paying tax twice on the same income.

Does New Hampshire really have no income tax?

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

What if my employer is in a high-tax state but I live in a no-income-tax state?

Most states tax income based on where you work, not where you live. If you work remotely for a company in New York but live in Florida, you may owe New York income tax. Some states have reciprocal agreements that change this. Confirm the rule with both states' revenue departments before relying on it for tax planning.