Nine states charge no state income tax on wages
Nine U.S. states collect no income tax on wages, salaries, or investment earnings. They are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes dividend and interest income but not wages. If you earn money in one of these states or move there, you will not owe state income tax on that earnings, though you will still owe federal income tax to the IRS.
These states fund government services through other means: sales tax, property tax, excise taxes on fuel and alcohol, and business taxes. The tax burden shifts rather than disappears. A state with no income tax often has a higher sales tax or property tax to compensate.
Whether living in a no-income-tax state saves you money depends on your income level, what you buy, and what property you own. A high earner benefits more from no income tax than a low earner does. Someone who rents and buys little pays less overall; someone who owns property and buys a lot may pay more.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on any earnings; New Hampshire taxes investment income but not wages.
- States without income tax typically charge higher sales tax or property tax, so the total tax burden depends on your spending and property ownership, not just income.
- You still owe federal income tax to the IRS regardless of which state you live in.
- Moving to a no-income-tax state saves the most money for high earners; renters and low-income households may see little difference or pay more overall.
How the nine no-income-tax states fund services
States without income tax rely on sales tax as their primary revenue source. Most charge between 5 and 7 percent sales tax statewide, though local jurisdictions often add more. Washington charges 6.5 percent statewide plus local tax; Tennessee charges 7 percent statewide plus local tax. Alaska charges no statewide sales tax but allows local jurisdictions to set their own, creating variation by city.
Property tax is the second major revenue stream. Texas, for example, has no income tax but charges property tax rates that rank among the highest in the nation — often 1.5 to 2 percent of home value annually. Florida has lower property tax rates but makes up revenue through sales tax and corporate taxes. Wyoming and South Dakota keep both property and sales tax moderate but rely heavily on mineral extraction taxes and business licensing fees.
Excise taxes on gasoline, cigarettes, and alcohol also fund state budgets. Nevada and Washington both tax alcohol heavily. Alaska taxes fuel. These taxes hit all residents and visitors equally, regardless of income level.
New Hampshire's partial income tax — what it covers and what it does not
New Hampshire does not tax wages, salaries, or self-employment income. It taxes only dividends and interest income at a flat 5 percent rate. If your earnings come from a job, you owe nothing to New Hampshire. If you earn money from investments — stocks, bonds, rental property, or a business that generates profit — you owe tax on that portion.
This distinction matters most to retirees living on investment income and to business owners. A retiree with a pension or Social Security owes no New Hampshire tax. A retiree with a large investment portfolio owes tax on the earnings. New Hampshire also does not tax capital gains — profit from selling stocks or property — so the tax applies only to ongoing dividend and interest payments.
New Hampshire funds state services through sales tax (6 percent statewide, often higher locally), property tax, and business taxes. The state also has no sales tax on groceries or clothing, which lowers the effective sales tax burden for lower-income households.
Sales tax and property tax trade-offs in no-income-tax states
A state that eliminates income tax must raise revenue elsewhere, and that shift changes who pays and how much. The table below shows how the nine no-income-tax states compare on sales tax and property tax rates.
| State | State Sales Tax | Typical Property Tax Rate |
|---|---|---|
| Alaska | 0% (local only) | 1.0%–1.2% |
| Florida | 6.0% | 0.7%–0.9% |
| Nevada | 6.85% | 0.6%–0.8% |
| South Dakota | 4.5% | 0.8%–1.0% |
| Tennessee | 7.0% | 0.7%–0.9% |
| Texas | 6.25% | 1.6%–1.8% |
| Washington | 6.5% | 0.8%–1.0% |
| Wyoming | 4.0% | 0.6%–0.8% |
| New Hampshire | 0% (groceries, clothing exempt) | 1.0%–1.2% |
Sales tax hits everyone equally — renters and homeowners, low earners and high earners. A person who spends $50,000 per year on taxable goods in Tennessee pays $3,500 in sales tax. Property tax hits homeowners but not renters. A homeowner with a $300,000 house in Texas pays roughly $4,800 to $5,400 per year in property tax; a renter in the same area pays nothing directly to the state (though rent may reflect the landlord's property tax burden).
For a high-income earner who owns property, the trade-off usually favors the no-income-tax state. A person earning $200,000 per year in a state with 5 percent income tax pays $10,000 in state income tax alone. In Texas, that person pays no income tax but likely pays more in property tax and sales tax combined — still less than $10,000 for most households. For a renter earning $30,000 per year, the math reverses: the sales tax burden in a high-sales-tax state may exceed the income tax they would pay elsewhere.
How no-income-tax status affects your federal tax bill
State income tax and federal income tax are separate. Living in a state with no income tax does not change what you owe the IRS. You still file a federal return and pay federal tax on all income above the standard deduction. The federal tax rate depends on your income bracket, not your state of residence.
One indirect benefit exists: if you live in a state with income tax, you can deduct that state tax from your federal taxable income (up to $10,000 per year under current federal rules). In a no-income-tax state, you have no state income tax to deduct, but you also have no state income tax to pay. For most households, the federal deduction does not offset the state tax owed, so living in a no-income-tax state still saves money overall — but the savings are smaller than the state tax alone would suggest.
Who benefits most from moving to a no-income-tax state
High earners benefit the most. A person earning $150,000 per year in California (which charges up to 13.3 percent state income tax) would owe roughly $15,000 to $20,000 in state income tax. Moving to Texas or Florida eliminates that bill entirely. Even accounting for higher property or sales tax in those states, the savings are substantial.
Retirees with pension or Social Security income also benefit. Most states do not tax Social Security, and many do not tax pensions. A retiree in a no-income-tax state avoids tax on any pension income as well. A retiree in New Hampshire avoids tax on wages and pensions but pays tax on investment income, so the benefit depends on the source of retirement funds.
Low-income renters see little benefit and may pay more. A renter earning $25,000 per year pays minimal or no state income tax in most states anyway (due to the standard deduction). Moving to a high-sales-tax state increases their tax burden. A renter in Tennessee or Washington pays 7 and 6.5 percent sales tax on nearly every purchase, which adds up faster than income tax would.
Frequently Asked Questions
Do I still have to pay federal taxes if I live in a no-income-tax state?
Yes. Federal income tax is separate from state income tax. You owe federal tax to the IRS on all income above the standard deduction, regardless of which state you live in. The no-income-tax status of your state does not change your federal obligation.
Can I move to a no-income-tax state just to avoid taxes?
You can move for any reason, but the IRS requires you to establish genuine residency — not just claim a state address. You must live there, work there if possible, register your car there, and maintain a home there. The IRS scrutinizes moves that appear designed solely to avoid taxes, especially for high earners. Consult a tax professional before relocating for tax reasons.
Which no-income-tax state has the lowest overall tax burden?
That depends on your situation. Wyoming and South Dakota have low sales tax (4 percent and 4.5 percent) and low property tax, making them competitive for most households. Alaska has no statewide sales tax but varies by city. Nevada has moderate sales and property tax. For high earners, all nine states beat high-income-tax states. For renters, Wyoming and South Dakota are usually cheaper than Tennessee or Washington.
Does New Hampshire's investment income tax explore to retirement accounts?
No. New Hampshire does not tax distributions from 401(k)s, IRAs, or other retirement accounts. The 5 percent tax applies only to dividends and interest earned outside retirement accounts. A retiree withdrawing from a traditional IRA owes no New Hampshire tax on that withdrawal.
If I work remotely for a company in another state, which state taxes my income?
Your state of residence taxes your income, not the state where your employer is located. If you live in Texas and work remotely for a company in New York, Texas does not tax your income (because Texas has no income tax), and New York does not tax it either (because you do not work there). You owe federal tax and any local tax in your home state.