Which states don't tax wages
Nine states do not tax wages or salaries: 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. The other eight tax neither wages nor most forms of investment income.
These states fund government operations through other revenue sources: sales tax, property tax, corporate tax, excise tax on specific goods, and licensing fees. The mix varies by state. For example, Washington and Nevada rely heavily on sales tax, while Alaska uses oil revenue and a smaller sales tax.
If you work in one of these states or are considering a move, the lack of state income tax affects your take-home pay but does not change how you file federal taxes or what you owe the IRS.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax on wages; New Hampshire taxes investment income but not wages.
- These states fund services through sales tax, property tax, corporate tax, and other revenue sources, so your overall tax burden depends on your spending and property ownership, not just income.
- Working in a no-income-tax state does not change your federal tax filing or what you owe to the IRS.
- If you move to one of these states, you may owe income tax to your previous state for the portion of the year you worked there, depending on that state's rules.
How no-income-tax states fund services
States without income tax replace that revenue through other taxes. Sales tax rates in these states tend to be higher than the national average. Washington, Tennessee, and Louisiana have the highest combined state and local sales tax rates in the country, all above 9 percent.
Property tax also funds schools and local government in these states. Alaska and Texas have relatively low property tax rates, while New Jersey and Illinois — which do tax income — have higher property taxes. The relationship is not direct: a state without income tax may still have low property tax if it funds services through sales tax or other sources.
Some states use corporate income tax, excise taxes on fuel or alcohol, or licensing and permit fees. Alaska's situation is unique: oil revenue from the state's oil reserves funds a significant portion of the budget, which is why Alaska has no income tax and no sales tax in most of the state.
What happens if you move to a no-income-tax state
If you move mid-year from a state that taxes income to one that does not, you may still owe income tax to your previous state for the months you worked there. Most states tax income based on where you earned it, not where you live at year-end. You will report wages earned in the old state on that state's tax return for the portion of the year you lived there.
Your new state will not tax the wages you earn after you move, but you must establish residency to claim that status. Residency typically requires you to live in the state for the full tax year or to meet specific tests like maintaining a home there or registering your vehicle. Check your new state's rules before assuming you are exempt from the old state's tax.
If you are self-employed or have a business, the rules are more complex. Some states tax self-employment income based on where the work is performed, while others use where the business is located. Consult a tax professional if you operate a business across state lines.
How to report income if you work in multiple states
If you work in more than one state during the same year — for example, you moved mid-year or you work remotely for a company in a different state — you report income to each state where you earned it. You file a nonresident return in the state where you worked and a resident return in the state where you live at year-end.
The state where you live may give you a credit for taxes paid to the other state, so you do not pay tax twice on the same income. The credit is usually limited to the tax rate of your home state, so if you worked in a high-tax state and moved to a no-tax state, you may not recover all the tax you paid. Federal taxes work the same way: you file one federal return reporting all income, regardless of where you earned it.
Remote work and state income tax
If you work remotely for a company based in a state with income tax but you live in a state without income tax, you generally owe tax only to the state where you live — which is none. Your employer's state usually does not tax wages earned by nonresidents working outside the state.
However, some states have tried to tax remote workers or have special rules for certain professions. Most of these efforts have been blocked or repealed, but the rules can change. If you work remotely across state lines, confirm the current rules with your employer's payroll department or a tax professional, especially if you recently moved or your employer is in a high-tax state like California or New York.
Your employer will withhold tax based on where you work, not where the company is located. If you move to a no-income-tax state, notify your employer's payroll department so they stop withholding state income tax.
Retirement income and pensions in no-income-tax states
Most states without income tax do not tax retirement income, including Social Security, pensions, and distributions from retirement accounts like 401(k)s and IRAs. This is one reason retirees often move to these states. However, the rules vary slightly by state and by income type.
Tennessee and New Hampshire tax certain types of investment income — interest and dividends — but not wages or retirement income. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not tax any of these income types. If you are planning to retire and want to minimize state taxes, these eight states offer the broadest exemption.
Federal taxes still apply to all retirement income. Social Security may be taxable at the federal level depending on your total income, and distributions from traditional retirement accounts are taxed as ordinary income. Moving to a no-income-tax state reduces your tax burden but does not eliminate federal taxes.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
No. You must establish residency in the state, which typically means living there for the full tax year and meeting other tests like maintaining a home or registering your vehicle. Simply working in a no-income-tax state while living elsewhere does not exempt you from your home state's tax.
If I work remotely for a company in California but live in Texas, do I owe California income tax?
No. California does not tax wages earned by nonresidents working outside the state. You owe tax only to Texas, which has no income tax. Notify your employer's payroll department of your move so they stop withholding California tax.
Does New Hampshire really have no income tax?
New Hampshire has no tax on wages or salaries, but it taxes interest and dividend income at 5 percent. If your income is primarily from wages or retirement accounts, you owe no state income tax. If you have significant investment income, you will owe tax on that portion.
Will I owe my old state income tax if I move mid-year?
Yes, most likely. You owe income tax to the state where you earned the income, not where you live at year-end. If you worked in a state with income tax for part of the year, you file a nonresident return there for that period. Your new state will not tax wages earned after you move.
Is the overall cost of living lower in no-income-tax states?
Not necessarily. While you save on income tax, you may pay more in sales tax or property tax. The total tax burden depends on your income level, spending habits, and whether you own property. Compare the full tax picture, not just income tax, before deciding to move.