Nine states collect no income tax on wages or salaries
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire is the only one that taxes interest and dividend income, but not work income. The other eight tax neither wages nor investment income.
This does not mean these states have no taxes at all. They fund schools, roads, and services through sales tax, property tax, corporate tax, and other revenue sources. The rates and what they tax vary widely. A state with no income tax may have a higher sales tax or property tax than a state that does tax income.
If you are considering a move or already live in one of these states, understanding how they replace income tax revenue matters for your actual tax bill. A low income tax state might still cost you more overall depending on where you spend money and what you own.
Key Takeaways
- Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
- New Hampshire taxes investment income but not work income, making it different from the other eight.
- States without income tax typically rely on sales tax, property tax, and corporate tax to fund government services.
- Moving to a no-income-tax state does not automatically lower your total tax burden if sales or property taxes are higher.
- Some states without income tax also have no sales tax (Alaska) or no property tax on primary residences (Florida, Texas).
How no-income-tax states replace that revenue
States without income tax must fund schools, highways, police, and courts through other sources. The most common replacement is a higher sales tax. Washington and Tennessee both have sales tax rates above 9 percent. Nevada's is 8.23 percent. These rates apply to most purchases, though some states exempt groceries or medicine.
Property tax is another major source. Texas and Florida have no income tax but do tax real estate. Property tax rates in Texas average around 1.8 percent of home value per year, though this varies by county. Florida's average is lower, around 0.9 percent. Alaska has no sales tax and no income tax, but property tax exists in most municipalities.
Corporate tax, business licensing fees, and excise taxes on fuel, alcohol, and tobacco also fill the gap. Wyoming has no income tax and no sales tax, but relies on mineral extraction taxes and corporate taxes. The mix differs in each state, so your actual tax burden depends on what you earn, what you buy, and what you own.
Income tax versus total tax burden: what actually matters
A state with no income tax is not automatically cheaper. Someone earning $60,000 a year might pay less total tax in a no-income-tax state if they rent and buy little. The same person might pay more if they own a home or spend heavily on taxed goods.
Example: A renter in Washington (no income tax, 10.25 percent sales tax) pays sales tax on every purchase but no income tax. A renter in Oregon (9.9 percent income tax, no sales tax) pays income tax on wages but not on purchases. The Washington resident saves money on groceries and clothes; the Oregon resident saves on those items but pays income tax. Which is cheaper depends on spending patterns.
Homeowners should compare property tax rates directly. Florida and Texas have no income tax and relatively low property tax. New Hampshire has no income tax but property tax rates are among the highest in the nation, averaging 2.1 percent of home value. A high earner with a valuable home might pay more total tax in New Hampshire than in a state with income tax but lower property tax.
New Hampshire: the exception with investment income tax
New Hampshire stands apart because it taxes interest and dividend income but not wages. This matters only if you have investment income. Someone earning $80,000 in wages pays no state income tax. Someone earning $80,000 in dividends from stocks pays New Hampshire's tax on that income.
The tax rate on interest and dividends is 5 percent. New Hampshire also has no sales tax, which is unusual among no-income-tax states. Property tax is high, averaging 2.1 percent of home value annually. For a wage earner with no investments, New Hampshire functions like a true no-income-tax state. For a retiree living on investment income, it does not.
States with no income tax and additional tax breaks
Some no-income-tax states offer extra advantages. Florida and Texas both have no income tax and no tax on retirement income, including Social Security and pension distributions. This makes them popular with retirees. Alaska has no income tax and no sales tax, though property tax exists locally.
Wyoming has no income tax, no sales tax, and no tax on retirement income. However, property tax rates vary by county, and the state relies heavily on mineral extraction taxes and corporate taxes. These states are not uniformly cheap; they simply shift the tax burden to different sources.
South Dakota, Tennessee, and Washington have no income tax but do tax sales and property. South Dakota and Tennessee both exempt groceries from sales tax, which lowers the effective rate for lower-income households. Washington taxes groceries at the full rate.
How to calculate your actual tax burden in a no-income-tax state
To compare your costs, gather three numbers: your annual income, your expected annual spending on taxed goods, and your home value (if you own). Then look up the specific rates in the state you are considering.
Income tax you would pay in your current state is easy to calculate from your tax return. Sales tax is your spending multiplied by the state rate (minus any exempted items). Property tax is your home value multiplied by the local rate. Add the sales and property tax, then compare to what you currently pay in income tax plus sales and property tax combined.
This calculation is rough because tax codes have exemptions, deductions, and local variations. But it shows whether a move actually saves money. Many people assume no income tax means lower taxes overall and are surprised to find property or sales tax is higher than the income tax they avoided.
Frequently Asked Questions
If I move to a no-income-tax state, do I stop paying income tax immediately?
No. You pay income tax to the state where you earned the money in the year you earned it. If you move mid-year, you owe tax to both states on income earned while you lived there. Some states offer credits to avoid double taxation. You should file taxes in both states for the year you moved and keep records of when you changed residence.
Do I have to live in a no-income-tax state to avoid income tax?
You must be a resident of the state to avoid its income tax. Residency is usually determined by where you live for more than half the year, where you have a driver's license, or where you register to vote. Working remotely for a company in a high-tax state while living in a no-income-tax state does not exempt you from your home state's tax.
Does Social Security count as income in no-income-tax states?
No. All nine no-income-tax states exempt Social Security from taxation. Some also exempt pensions and retirement account withdrawals. Florida and Texas exempt all retirement income. New Hampshire taxes investment income but not retirement distributions. Check the specific state's rules if retirement income is your main source of money.
Can I claim residency in a no-income-tax state if I own property there?
Owning property does not establish residency for tax purposes. You must live there for more than half the year, have a driver's license, register to vote, or meet other residency tests set by the state. Some people own vacation homes in no-income-tax states but remain residents of their home state for tax purposes and pay income tax there.
Which no-income-tax state has the lowest overall taxes?
This depends on your income, spending, and whether you own a home. Alaska has no income tax and no sales tax, making it cheapest for high earners who spend little. Wyoming is similar. Florida is popular with retirees because it has no income tax and no tax on retirement income. Texas has no income tax and moderate property tax. Compare your specific situation against each state's rates rather than assuming one is universally cheapest.