Nine states do not collect income tax on wages, and most make up the difference with sales tax, property tax, or both

Nine U.S. states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes investment income and interest but not wages. These states do not tax what you earn from a job or business, though they fund schools, roads, and services through other revenue sources.

The states without income tax tend to rely on higher sales taxes, property taxes, or both. For example, Washington and Tennessee have no income tax but charge sales tax rates above 9 percent. Alaska has no state sales tax and no income tax, funding government largely through oil revenue and property taxes. The trade-off varies by state, so moving to a no-income-tax state does not automatically mean lower total taxes.

Several other states tax only certain types of income — interest and dividends, for instance — while leaving wages untouched. Understanding which income your state taxes matters if you are comparing where to live or calculating what you owe.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
  • New Hampshire taxes investment income and interest but not wages, making it a partial exception.
  • States without income tax typically fund government through sales tax, property tax, or natural resource revenue instead.
  • A state with no income tax may have higher sales or property taxes, so total tax burden depends on how you spend and own property.
  • Some states tax only certain income types — such as interest and dividends — while leaving wages alone.

The nine states and their tax structures

Alaska has no state income tax and no state sales tax. It funds government primarily through oil revenue and property taxes. Residents pay local sales taxes in some municipalities, but the state itself does not collect sales tax.

Florida has no state income tax and funds government through a 6 percent state sales tax (plus local additions that vary by county). Property taxes are also collected by counties. Florida attracts retirees partly because pensions and Social Security are not taxed.

Nevada has no state income tax and relies on a 6.85 percent state sales tax plus local options. Property taxes are lower than the national average. Nevada also taxes business revenue through a payroll tax on employers.

South Dakota has no state income tax and funds government through a 4.5 percent state sales tax plus local additions. Property taxes are moderate. South Dakota also taxes business income through a corporate tax.

Tennessee has no state income tax on wages but does tax investment income (interest and dividends) at 3.75 percent. It funds government through a 9.55 percent state sales tax, one of the highest in the nation, plus property taxes.

Texas has no state income tax and no corporate income tax. It funds government through an 8.25 percent state sales tax plus local additions, property taxes, and business taxes on certain activities. Texas also has no inheritance or estate tax.

Washington has no state income tax but charges a 6.5 percent state sales tax plus local additions, bringing total sales tax above 9 percent in many areas. It also collects property taxes and recently introduced a capital gains tax on certain investment sales.

Wyoming has no state income tax and no state sales tax. It funds government through property taxes, excise taxes, and revenue from mineral extraction. Local governments may collect sales taxes.

New Hampshire has no tax on wages but taxes interest and dividend income at 5 percent. It funds government through a 0 percent state sales tax (no sales tax), property taxes, and a "rooms and meals" tax on hospitality. New Hampshire also has no inheritance tax.

How states without income tax replace that revenue

States that do not collect income tax must fund schools, highways, police, and other services through other sources. The most common replacement is sales tax, which applies to purchases of goods and sometimes services. Sales tax rates in no-income-tax states range from zero (Alaska and Wyoming) to over 9 percent when state and local taxes combine (Tennessee and Washington).

Property tax is another major source. Even states with no income tax collect property tax on real estate, and rates vary widely. Wyoming and Alaska have lower property tax rates than the national average, while other no-income-tax states fall closer to the middle. If you own a home or plan to, property tax matters as much as income tax when comparing total tax burden.

Some states use revenue from natural resources. Alaska's oil revenue funds a significant portion of state spending. Texas and Wyoming collect taxes on mineral extraction. These revenue sources are not available to every state, which is why no-income-tax states in other regions rely more heavily on sales and property tax.

States that tax only certain types of income

A few states fall between "no income tax" and "full income tax." They tax only specific income types, usually interest and dividends, while leaving wages untouched.

Tennessee taxes interest and dividend income at 3.75 percent but has no tax on wages. New Hampshire taxes interest and dividends at 5 percent but has no tax on wages. These states are sometimes called "wage-tax-free" states because the income most people earn from jobs is not taxed, even though investment income is.

If you receive most of your income from a job, these states function like no-income-tax states. If you have significant investment income, you will owe tax on that portion. The distinction matters for retirees who live on pensions and investment returns.

What "no income tax" means for your paycheck

In a no-income-tax state, your employer does not withhold state income tax from your paycheck. You do not file a state income tax return (with the exceptions noted above for Tennessee and New Hampshire investment income). This simplifies tax filing for wage earners.

However, you still owe federal income tax, and you still file a federal return. Moving to a no-income-tax state does not reduce your federal tax burden. It only removes the state layer.

If you are self-employed or run a business, the rules vary. Some no-income-tax states tax business income through other mechanisms — Nevada through payroll tax, South Dakota through corporate tax, Texas through business-specific taxes. You will need to research your state's rules for your particular situation.

Comparing total tax burden across states

A state with no income tax does not automatically have the lowest total taxes. The comparison depends on how much you earn, how much you spend, whether you own property, and what type of income you receive.

A high-income earner in a no-income-tax state with high sales tax may pay more total tax than someone in a state with moderate income tax and lower sales tax. A retiree living on a pension in Florida (no income tax, pension not taxed) may pay less total tax than in a state that taxes pensions. A property owner in Wyoming (no income tax, moderate property tax) may pay less than in a state with income tax and higher property tax.

If you are considering a move based on taxes, calculate your specific situation: income tax on your wages, sales tax on your typical spending, and property tax on a home at the price you expect to pay. The total matters more than any single tax.

Frequently Asked Questions

Does moving to a no-income-tax state reduce my federal taxes?

No. Federal income tax applies in all states. Moving to a state without state income tax removes only the state layer of taxation. You still file a federal return and owe federal tax based on your income.

Can I avoid taxes by moving to Alaska or Wyoming?

No. Both states have no income tax and no sales tax, but they collect property tax and other taxes. Alaska also taxes certain business activities. Wyoming taxes mineral extraction and collects property tax. You cannot avoid all taxes by moving.

If I work in a no-income-tax state but live in another state, which state taxes my income?

Generally, your state of residence taxes your income, not your state of work. If you live in a state with income tax but work in a no-income-tax state, you owe tax to your home state. Some states have reciprocal agreements that change this rule, so check with both states' tax agencies.

Do retirees pay income tax in Florida or Texas?

Retirees in Florida and Texas do not pay state income tax on any income, including pensions and Social Security. This is one reason these states attract retirees. However, they still pay property tax and sales tax on purchases.

Is New Hampshire's tax on interest and dividends the same as income tax?

It is a separate tax, not income tax. New Hampshire calls it the "interest and dividends tax." If your income comes from wages, you pay nothing. If you have investment income, you pay 5 percent on that portion. Many retirees with pensions and investment accounts owe this tax.