Five states collect no income tax at all
Alaska, Florida, Nevada, South Dakota, and Texas do not tax wages, salaries, or investment income. Tennessee and New Hampshire tax only investment income (dividends and interest), not wages. If you live or work in one of these states, you keep more of what you earn compared to states with income tax.
This does not mean these states have no taxes. They fund schools, roads, and services through sales tax, property tax, fuel tax, and other levies. The mix varies by state. Alaska, for instance, has no sales tax but charges property tax. Texas has no income tax but a higher sales tax than many states.
If you are considering a move or deciding where to work, understanding your state's full tax picture matters more than income tax alone. A state with no income tax might have higher property or sales taxes that offset the savings.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, and Texas have no income tax on wages or investment income.
- Tennessee and New Hampshire tax investment income but not wages, making them partial income-tax-free states.
- States without income tax typically fund services through sales tax, property tax, and other levies, so your total tax burden depends on how you spend and own property.
- Moving to a no-income-tax state can save money if you earn wages, but may cost more if you own property or buy goods frequently.
How no-income-tax states fund public services
Without income tax revenue, these states rely on other sources. Sales tax is the most common replacement. Texas, Nevada, and Florida all have sales taxes between 6 and 7.5 percent, depending on the city and county. Alaska has no statewide sales tax, but many municipalities charge local sales tax.
Property tax funds schools and local government in most of these states. Texas and Florida property taxes are moderate to high. Alaska has lower property taxes in many areas but varies widely by borough. Nevada has no property tax on vehicles, which saves owners money.
Some states use fuel tax, tobacco tax, alcohol tax, and business taxes to fill gaps. South Dakota, for example, has a higher sales tax (6.5 percent) and relies on tourism and business licensing fees. The point is that living tax-free on income does not mean living tax-free overall.
States with partial income tax exemptions
Tennessee taxes dividends and interest at 3.75 percent but does not tax wages. This means if you earn a salary, you pay nothing. If you live off investment income, you pay tax. Tennessee is phasing out this tax entirely—it is scheduled to end in 2025, making Tennessee fully income-tax-free.
New Hampshire taxes investment income at 5 percent but not wages. Like Tennessee, it is a middle ground. If your income comes from a job, you keep it all. If you live on stock dividends or bond interest, you owe tax to New Hampshire.
Both states still charge sales tax and property tax. Tennessee's sales tax is 9.55 percent (including local), among the highest in the country. New Hampshire has no sales tax but higher property taxes. Again, the full picture matters.
How income tax savings compare to other costs
Moving to a no-income-tax state saves money only if your tax savings outweigh higher costs elsewhere. A person earning $60,000 a year in California (which taxes income at up to 13.3 percent) would save roughly $7,980 in state income tax by moving to Texas. But if Texas property taxes or sales taxes cost an extra $8,000 a year, the net savings is zero.
The math changes based on your situation. High earners benefit most from no income tax. Someone making $150,000 saves far more than someone making $40,000. Retirees living on Social Security (which is not taxed in any state) see no income tax benefit at all. Homeowners with expensive property may pay more in property tax than they save in income tax.
Use your own numbers. Calculate your current state income tax, then research the sales tax, property tax, and other levies in the state you are considering. Many state tax websites have calculators that show total tax burden by income level.
Remote workers and tax residency
If you work remotely for a company in a high-tax state but live in a no-income-tax state, you generally owe tax only to your state of residence. Most states tax based on where you live, not where your employer is located. Moving to Florida and working for a New York company means you pay Florida tax (or none), not New York tax.
However, some states have tried to tax remote workers who moved away. New York, for example, has pursued people who left during the pandemic. The law is still unsettled in a few places. If you are considering a move, confirm the rules with a tax professional in both your current state and the state you plan to move to.
Military members and federal employees have additional rules. If you are stationed in a no-income-tax state, you may be able to claim it as your tax home even if you move later. The rules are complex and worth discussing with a tax advisor.
Comparing the five full no-income-tax states
| State | Sales Tax | Property Tax (Typical) | Other Notable Taxes |
|---|---|---|---|
| Alaska | No statewide; local varies | Low to moderate | Oil and gas taxes; fishing licenses |
| Florida | 6–7.5% | Moderate to high | Tourism development tax in some counties |
| Nevada | 6.85–8.1% | Low; no vehicle property tax | Gaming tax; mining tax |
| South Dakota | 6.5% | Low to moderate | Excise taxes on fuel and utilities |
| Texas | 6.25–8.25% | Moderate to high | Franchise tax on businesses |
When to talk to a tax professional
If you are planning to move, have significant investment income, own property in multiple states, or are self-employed, a tax professional can model your specific situation. They can show you the real cost difference between states and help you understand important date for changing your tax residency.
You do not need a professional to learn the basics—state tax websites publish rates and rules. But if your finances are complex, the cost of an hour with a CPA or tax attorney often pays for itself in savings or avoided mistakes.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from it?
No. If you work remotely for a company in that state or have income earned there, you may owe tax only to that state. However, most states tax based on residency, so you would need to establish legal residency in the no-income-tax state. Consult a tax professional about your specific situation.
Is Social Security taxed in no-income-tax states?
No state taxes Social Security, whether it has income tax or not. Federal tax on Social Security depends on your total income and filing status, not your state. Living in a no-income-tax state does not change your federal Social Security tax.
What if I own property in a high-tax state but live in a no-income-tax state?
You owe property tax to the state where the property is located, not where you live. If you own a rental property in California but live in Texas, you pay California property tax on that property. You would not owe California income tax on the rental income if you are a Texas resident, but you would owe federal tax.
Can I claim residency in a no-income-tax state if I only visit?
No. States require proof of residency, such as a driver's license, voter registration, or lease. straightforward visiting or owning a vacation home does not establish residency. You must move and establish ties to the state—a permanent address, utilities in your name, and a state ID.
Are there any downsides to living in a no-income-tax state?
The main downside is that these states often fund schools and services with sales and property taxes, which can be higher than in income-tax states. Some people also find the cost of living in popular no-income-tax states like Florida and Texas has risen as more people move there. Research the specific city and state before deciding.