Nine states have no income tax on wages, and two more tax only investment income

Nine states do not tax wages or salaries at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. Two additional states—New Hampshire and Tennessee—have no income tax but do tax investment income like dividends and capital gains, though both are phasing out or have already eliminated those taxes. If you earn wages, the nine states listed first are the ones with zero income tax on that money.

This does not mean these states have no taxes. They fund schools, roads, and services through sales tax, property tax, corporate tax, and other revenue sources. The tax burden in a no-income-tax state can still be higher than in a state with income tax, depending on how much you spend and own property.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
  • No-income-tax states typically rely on sales tax and property tax instead, so your total tax burden depends on your spending and property ownership.
  • Moving to a no-income-tax state for tax reasons makes the most sense if you earn high wages or investment income and plan to stay long-term.
  • Some states tax only investment income or are in the process of eliminating taxes they once had, so the landscape changes over time.

The nine states with no income tax on wages

Alaska has no state income tax and no sales tax, though municipalities can impose local sales taxes. It also has no property tax on most residential property. Alaska funds its budget partly through oil revenue and a sovereign wealth fund.

Florida has no income tax but charges 6% sales tax (higher in some counties). Property tax rates vary by county and are based on assessed home value. Florida also has no estate tax.

Nevada has no income tax and no estate tax. Sales tax is 6.85% statewide, though local taxes can raise it higher. Property tax is relatively low compared to other states.

South Dakota has no income tax and no estate tax. Sales tax is 4.5% statewide, with local options bringing it higher in some areas. Property tax varies by county.

Tennessee eliminated its income tax on wages in 2021 after a phase-out period. It has a 9.55% sales tax, one of the highest in the nation. Property tax is low, and there is no estate tax.

Texas has no income tax and no estate tax. Sales tax is 6.25% statewide, with local additions common. Property tax is the main revenue source for schools and local government.

Washington has no income tax but charges 6.5% sales tax statewide, with local taxes raising it higher in many areas. Property tax is moderate. Washington also has no estate tax.

Wyoming has no income tax and no estate tax. Sales tax is 4% statewide, with local options available. Property tax is low, and the state funds schools partly through mineral extraction taxes.

New Hampshire has no income tax on wages but does tax investment income (dividends and interest). Sales tax is 0%, making it attractive for purchases, though property tax is relatively high. New Hampshire is phasing out its investment income tax.

How these states replace income tax revenue

States without income tax must fund schools, highways, police, and courts through other sources. The most common replacement is sales tax, which is why many no-income-tax states have higher sales tax rates than the national average.

Property tax is another major source. Texas and Wyoming rely heavily on property tax to fund schools. If you own a home, property tax in a no-income-tax state may offset the savings from not paying income tax.

Corporate tax and business taxes also fund state budgets. Some no-income-tax states tax corporations at higher rates than states with income tax do. If you own a business, this matters.

A few states have unusual revenue sources. Alaska uses oil royalties and a permanent fund dividend. Wyoming taxes mineral extraction. These sources are not available to other states and are not stable long-term.

Whether moving for no income tax actually saves money

The math depends on your income, spending, and property ownership. A high-wage earner who rents and spends little will save the most by moving to a no-income-tax state. Someone who owns property or spends heavily on taxable goods may not save anything.

Example: A person earning $100,000 in California pays roughly 9.3% state income tax. In Texas, they pay zero income tax but may pay higher property tax and sales tax on purchases. The net savings varies by individual.

Moving costs, job availability, and housing prices also matter. Some no-income-tax states have high housing costs (Florida, Washington) that can erase tax savings. Others have lower costs of living overall.

If you are considering a move partly for tax reasons, calculate your total state and local tax burden in both your current state and the destination state, including property tax, sales tax, and any other levies. A tax professional can help with this comparison.

States that tax only investment income

New Hampshire and Tennessee both have no income tax on wages but historically taxed investment income. Tennessee eliminated its investment income tax in 2021 and completed the phase-out in 2022. New Hampshire still taxes dividends and interest but is phasing out this tax as well.

If you live on investment income rather than wages, these states may not be as attractive as the nine with zero income tax across the board. However, the tax rates on investment income in these states are typically lower than income tax rates on wages in other states.

How income tax status can change

State tax law changes over time. Tennessee did not have zero income tax until 2021. New Hampshire is moving toward zero investment income tax. Other states have added income taxes or raised rates in response to budget needs.

If you are planning a long-term move based on tax status, research the current law in your target state and check whether any changes are pending. State legislatures can and do modify tax codes.

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 a no-income-tax state but live in a state with income tax, you typically owe income tax to your state of residence. However, some states do not tax income earned outside their borders, so the rules vary. Consult a tax professional about your specific situation.

Is Alaska really tax-free?

Alaska has no state income tax and no sales tax, but it does have property tax (though residential property is often exempt). Municipalities can also impose local sales taxes. It is one of the lowest-tax states overall, but not completely tax-free.

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

This depends on your situation. Alaska has the lowest sales tax (zero statewide). Wyoming has low property tax and no estate tax. Texas has no estate tax but higher property tax. Compare your expected spending and property ownership in each state to find the best fit.

Can I claim residency in a no-income-tax state if I do not live there?

No. States define residency based on where you actually live, work, and maintain a home. Claiming residency in a state where you do not live is tax fraud. If you move for tax reasons, you must establish genuine residency in the new state.

Will no-income-tax states ever add income tax?

It is possible. States change tax law in response to budget pressures. However, no-income-tax states have strong political and cultural resistance to adding income tax, so it is unlikely in the near term. Monitor your state's legislature if you are concerned about future changes.