Nine states have no income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages or salaries. New Hampshire does not tax wages either, though it taxes interest and dividend income at 5 percent. If you live and work in any of these states, you pay no state income tax on your paycheck.
The absence of income tax does not mean these states collect no revenue. They fund schools, roads, and services through sales tax, property tax, corporate tax, and other sources. Sales tax rates in no-income-tax states often run higher than the national average to compensate.
Moving to a no-income-tax state for tax reasons alone requires careful math. A state with no income tax but 8 or 9 percent sales tax may cost you more overall than a state with 5 percent income tax and 6 percent sales tax, depending on how much you earn and spend.
Key Takeaways
- Nine states collect no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, plus New Hampshire (which taxes investment income only).
- No-income-tax states fund government through higher sales tax, property tax, and corporate tax, so your total tax burden depends on your spending and assets, not just wages.
- States with the lowest income tax rates (around 3 percent) include Louisiana, Mississippi, and North Dakota, which may cost less overall than no-income-tax states with high sales tax.
- Your state tax burden also depends on whether you own a home, how much you invest, and how much you spend on taxed goods, not income tax rate alone.
States with the lowest income tax rates (not zero)
If you live in a state that does tax income, Louisiana, Mississippi, and North Dakota have the lowest rates, each starting at 2 to 3 percent on the lowest income brackets. Pennsylvania and Illinois also tax income at flat rates of around 3 percent, meaning everyone pays the same percentage regardless of how much they earn.
Most other states use a progressive tax system, where the rate climbs as your income rises. A state might tax the first $30,000 at 3 percent, the next $50,000 at 5 percent, and income above that at 7 percent. Your effective rate — the actual percentage you pay on your total income — is lower than the top rate.
The lowest-tax states change slightly year to year as legislatures adjust rates. Checking your specific state's current tax brackets and rates through your state revenue department is more reliable than relying on a list that may shift.
How to calculate your actual tax burden across states
Income tax rate alone does not tell you which state costs less. A person earning $60,000 in Texas (no income tax) might pay more total tax than someone earning the same amount in Pennsylvania (3 percent flat tax) if Texas has 8.25 percent sales tax and Pennsylvania has 6 percent. The Texas resident buys more taxed goods over a year and pays more overall.
To compare states honestly, add up income tax, sales tax on typical purchases, and property tax if you own a home. Property tax varies wildly — New Jersey averages around 2.5 percent of home value per year, while Hawaii averages under 0.3 percent. A high-income earner in a no-income-tax state with high property tax may pay more than someone in a low-income-tax state with low property tax.
Your personal situation matters too. If you invest heavily, states that tax capital gains or dividends differently will affect your bottom line. If you own a business, corporate tax and self-employment tax treatment vary by state. A tax professional in your state can model your specific situation.
Why states without income tax still fund schools and roads
States without income tax rely on other revenue sources. Sales tax is the most visible — most no-income-tax states charge 6 to 9 percent on retail purchases. Property tax funds local schools and services in many of these states. Corporate tax and taxes on business income also contribute.
Some no-income-tax states also tax specific goods heavily. Alaska has no sales tax but taxes oil extraction. Florida taxes hotel stays and rental cars at high rates, shifting the burden to tourists and travelers. Washington taxes capital gains on the sale of stocks and bonds above a certain threshold.
The result is that residents of no-income-tax states do not necessarily pay less tax overall — they pay it differently. A family that spends most of its income on taxed goods and services may pay more in sales and property tax than they would have paid in income tax elsewhere.
Moving to a lower-tax state: what actually changes
If you move to a state with lower income tax, your paycheck changes immediately — your employer adjusts withholding based on your new state. If you move from a state with income tax to one without, you will see a larger paycheck starting the next pay period after you update your W-4 form with your employer.
Your total tax picture changes more slowly. You will pay sales tax on purchases in your new state going forward. If you own a home, property tax bills reflect your new state's rates. If you sell investments or receive dividends, your new state's treatment of investment income applies.
One important detail: if you move mid-year, you may owe income tax to both your old state and your new state for the portion of the year you lived in each. Some states have reciprocal agreements that prevent double taxation, but not all do. Check with your old state's revenue department before you move.
Frequently Asked Questions
If I move to a no-income-tax state, do I save money immediately?
Your paycheck grows immediately because your employer stops withholding state income tax. However, your total tax burden depends on sales tax, property tax, and other state taxes. You may save money overall, but not automatically — it depends on your spending and assets in your new state.
Does New Hampshire really have no income tax?
New Hampshire does not tax wages or salaries, but it taxes interest and dividend income at 5 percent. If you earn money from investments, you pay state tax on that income. If you work for a paycheck, you do not.
Can I reduce my taxes by moving to a lower-tax state if I work remotely?
Yes, but you must actually move and establish residency in the new state. Most states tax income based on where you live, not where your employer is located. If you work remotely for a company in a high-tax state but live in a no-income-tax state, you pay tax in your home state. However, some states tax remote workers based on the employer's location — check both states' rules before moving.
What if I own a home in a high-property-tax state with no income tax?
Your property tax bill may be higher than your income tax would have been in another state. No-income-tax states often fund schools and local services through property tax instead. Compare your expected property tax in the new state to your current total state and local taxes before moving.
Do I owe taxes to my old state if I move mid-year?
You may owe income tax to both states for the portion of the year you lived in each, unless the states have a reciprocal agreement. Contact your old state's revenue department to find out whether you need to file a part-year return and what you owe.