Nine states collect no income tax on wages or investment earnings
Nine U.S. states do not tax wages, salaries, or investment income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception—it taxes only dividend and interest income, not wages. The other eight states tax neither wages nor investment earnings.
These states fund government operations through other revenue sources: sales tax, property tax, corporate tax, excise taxes on fuel and alcohol, and fees. The absence of income tax does not mean these states are tax-free overall. A resident or worker may pay more in total taxes through other channels than they would in a state with income tax but lower sales or property taxes.
If you are considering a move or evaluating your tax situation, understanding which states have no income tax is one piece of the picture. Your actual tax burden depends on where you earn money, where you live, what you own, and what you buy.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages or investment earnings.
- New Hampshire taxes investment income but not wages, making it a partial no-income-tax state.
- States without income tax rely on sales tax, property tax, corporate tax, and excise taxes instead.
- Moving to a no-income-tax state does not automatically lower your total tax bill if that state has higher sales or property taxes.
- Your employer's location, not just your home state, determines whether you owe income tax on wages.
The nine states with no income tax on wages or investments
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming impose no tax on wages, salaries, or investment income. These eight states have the broadest no-income-tax policies.
New Hampshire stands apart: it taxes dividends and interest income at 5 percent but does not tax wages or salaries. If your income comes entirely from a job, you owe no state income tax in New Hampshire. If you earn money from investments, you do.
All nine states still collect revenue through other means. Alaska, for example, has no sales tax but funds itself partly through oil revenue and property taxes. Texas has a sales tax of up to 8.25 percent (combined state and local rates) and property taxes. Florida has a 6 percent state sales tax and property taxes. The mix varies by state.
How these states replace income tax revenue
States without income tax must fund schools, roads, courts, and other services through alternative sources. The most common replacement is sales tax—a tax on purchases of goods and some services. Tennessee, Texas, Washington, and South Dakota all have sales tax rates between 5.5 and 7.25 percent at the state level, with local taxes adding more.
Property tax is another major source. Texas and Florida both rely heavily on property tax to fund schools and local government. Property tax rates vary widely by county and city within each state, so two homes of equal value in the same state can have different tax bills.
Other revenue sources include corporate income tax (which taxes business profits, not individual wages), excise taxes on gasoline and alcohol, gaming taxes, and licensing fees. Alaska's situation is unique: the state owns significant oil reserves and uses oil revenue to fund operations, which is why it has neither income tax nor a state sales tax.
Income tax on wages depends on where you work, not just where you live
If you live in a no-income-tax state but work in a state that has income tax, you may owe income tax to the state where you work. Your employer withholds based on your work location. When you file your state return, you report income to both states and claim a credit to avoid double taxation.
Remote workers face a more complex situation. If you live in Florida but work for a company based in New York, the rules depend on your company's payroll practices and whether you have a physical workplace in New York. Some employers withhold based on the employee's home state; others withhold based on company location. You should verify with your payroll department which state they withhold for.
If you are self-employed or a contractor, you are responsible for paying income tax to any state where you earned money, regardless of where you live. A freelancer living in Nevada who works for clients in California owes California income tax on that work.
Retirement income and pensions in no-income-tax states
Most of the nine no-income-tax states do not tax retirement income, including Social Security, pensions, and distributions from retirement accounts like 401(k)s and IRAs. This is one reason these states attract retirees.
Tennessee and New Hampshire are exceptions within the group. Tennessee does not tax Social Security or most pensions, but it taxes distributions from retirement accounts (though this tax is being phased out). New Hampshire does not tax Social Security or pensions, but it does tax dividends and interest, which may include income from certain retirement accounts.
If you are planning retirement and considering a move, research the specific rules for retirement account withdrawals in your target state. The rules change periodically, so verify current policy before making a decision.
Sales tax and property tax in no-income-tax states
Because these states do not collect income tax, they often rely more heavily on sales tax and property tax. A state with no income tax but a 7 percent sales tax may collect more total tax from you than a state with a 5 percent income tax and a 5 percent sales tax, depending on how much you earn and spend.
Sales tax applies to most purchases of goods and, in some states, services. It is collected at the point of sale. Property tax is assessed annually on real estate and, in some states, personal property like vehicles. Property tax rates vary significantly by county and municipality within each state.
The table below shows the approximate state-level sales tax and property tax burden in each no-income-tax state. Local taxes add to these figures and vary by location within the state.
| State | State Sales Tax | Property Tax (Typical Range) |
|---|---|---|
| Alaska | No state sales tax | 0.84% to 1.19% |
| Florida | 6% | 0.71% to 0.98% |
| Nevada | 6.85% | 0.60% to 0.70% |
| South Dakota | 4.5% | 0.82% to 1.31% |
| Tennessee | 7% | 0.71% to 0.87% |
| Texas | 6.25% | 1.80% to 2.00% |
| Washington | 6.5% | 0.84% to 0.98% |
| Wyoming | 4% | 0.61% to 0.82% |
| New Hampshire | No state sales tax | 1.09% to 2.18% |
These figures are approximate and change over time. Local sales taxes and property tax assessments vary by county and city. Use these ranges as a starting point, then research the specific county or city where you plan to live or work.
How to estimate your total tax burden in a no-income-tax state
To compare your tax situation across states, calculate what you would pay in income tax, sales tax, and property tax in each location. Start with your annual income, expected spending, and home value or rent.
In a state with income tax, multiply your taxable income by the state income tax rate. In a no-income-tax state, skip that step. Then estimate sales tax: multiply your annual spending by the state and local sales tax rate. Finally, if you own property, multiply your home's assessed value by the property tax rate.
This calculation is approximate because tax brackets, deductions, and local rates vary. For a precise comparison, use your actual tax return from the past year and adjust it for the new state's rules. If you are self-employed or have complex income, consider speaking with a tax professional who understands both your current state and the state you are considering.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid income tax?
No. You owe income tax to the state where you earn money, not necessarily where you live. If you work remotely for a company in a high-income-tax state, you may owe that state's income tax even if you live in a no-income-tax state. Verify with your employer's payroll department which state they withhold for.
Is Alaska really tax-free?
Alaska has no income tax and no state sales tax, which is unusual. However, it funds government through oil revenue, property taxes, and local taxes. Residents still pay property tax and, in some municipalities, local sales taxes. The cost of living in Alaska is often higher than in other states, which affects overall expenses.
If I retire to a no-income-tax state, will I pay no taxes at all?
Most no-income-tax states do not tax Social Security, pensions, or retirement account withdrawals, but you will still pay sales tax on purchases and property tax if you own a home. New Hampshire taxes investment income, so retirees living on dividends or interest will owe state tax there.
Can I claim a tax credit if I work in one state and live in another?
Yes. If you live in a no-income-tax state and work in a state with income tax, you report income to both states and claim a credit on your no-income-tax state return to avoid paying tax twice. The mechanics vary by state, so check your state's tax authority website or speak with a tax professional.
Which no-income-tax state has the lowest overall taxes?
That depends on your income, spending, and whether you own property. Alaska has no income or sales tax but relies on property tax. Wyoming has low income and sales taxes. Texas has no income tax but higher property taxes. Compare the specific taxes you would pay in each state based on your situation rather than looking for a single "lowest tax" state.