Nine states collect no income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages, investment income, or most other personal income. New Hampshire taxes only investment income and does not tax wages. These nine states fund their budgets through sales tax, property tax, corporate tax, and other revenue sources instead.
The absence of state income tax does not mean these states are cheaper overall. Many have higher sales taxes or property taxes to compensate. A state with no income tax but 9% sales tax may cost more than a state with 5% income tax and 6% sales tax, depending on how much you earn and spend.
If you are considering a move for tax reasons, compare your total state tax burden — not just income tax — against where you currently live. The math changes based on your income level, whether you own property, and how much you spend on taxable goods.
Key Takeaways
- Nine states have no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, plus New Hampshire (which taxes only investment income).
- States without income tax typically rely on sales tax, property tax, and corporate tax, so your total tax bill may not be lower even if you pay no income tax.
- Moving to a no-income-tax state for tax reasons requires comparing your full tax burden, including sales tax on purchases and property tax if you own a home.
- New Hampshire is unique: it has no tax on wages but does tax dividends and interest income, making it different from the other eight states.
How no-income-tax states replace that revenue
States without income tax must fund schools, roads, courts, and other services through other sources. The most common replacement is a higher sales tax. Texas has a base sales tax of 6.25%, Washington has 6.5%, and Tennessee has 9.55% — all higher than the national average of around 7.2%.
Property tax is another major source. Some no-income-tax states have moderate property taxes, while others are steep. Wyoming and South Dakota have relatively low property taxes, but Florida and Tennessee have higher rates. If you own a home, property tax can exceed what you would pay in income tax in a higher-tax state.
Corporate tax, excise taxes on fuel and alcohol, and licensing fees round out the revenue picture. No state survives on a single tax type. The combination matters more than the absence of one.
Which no-income-tax state has the highest sales tax
Tennessee has the highest statewide sales tax among no-income-tax states at 9.55%. Local sales taxes can push the total higher — some Tennessee counties add up to 2.75%, bringing the combined rate to over 12% in certain areas.
Washington state has a base rate of 6.5%, but local taxes can add another 3.9%, reaching 10.4% in some cities. Florida's base is 6%, with local additions up to 1.5%, for a maximum around 7.5%.
Alaska has no statewide sales tax, but some cities and boroughs impose local sales taxes ranging from 0% to 7.5%. This makes Alaska unusual: residents in some areas pay almost no sales tax, while those in Juneau or Anchorage pay more.
New Hampshire's partial income tax
New Hampshire stands apart because it taxes investment income but not wages. The state taxes dividends and interest at 5%, but wages, salaries, and self-employment income are not taxed.
This matters if you are retired and living on investment income, or if you have significant dividend or interest earnings. A retiree with $50,000 in annual dividend income would owe roughly $2,500 in New Hampshire tax. A wage earner making $50,000 would owe nothing.
New Hampshire compensates with a 6% sales tax (lower than Tennessee or Washington) and moderate property taxes. For wage earners, it functions like a no-income-tax state. For investors and retirees, it is a middle ground.
How to calculate whether moving saves you money
Start by estimating your total state tax in your current state. Add up income tax, sales tax (based on your spending), and property tax (if you own). Then do the same calculation for the state you are considering.
Example: You earn $80,000 in a state with 5% income tax ($4,000), spend $30,000 on taxable goods at 7% sales tax ($2,100), and own a home with $3,000 annual property tax. Your total is $9,100. In Texas, you pay $0 income tax, $30,000 at 6.25% sales tax ($1,875), and $2,500 property tax. Your total is $4,375 — a savings of $4,725.
But if you spend $60,000 on taxable goods instead of $30,000, the Texas sales tax jumps to $3,750, and the savings shrink to $3,350. The more you spend, the less a no-income-tax state saves you. The higher your income, the more it saves you.
Use your actual numbers: your income, your typical annual spending, and your home value (or expected home value). Online tax calculators from tax software companies can help, though they vary in accuracy.
States that recently changed their tax status
No state has eliminated income tax in the past 20 years. However, several states have reduced their income tax rates or offered targeted tax breaks. Some politicians in high-tax states have proposed eliminating income tax, but these proposals have not become law.
A few states have experimented with temporary tax holidays or reductions during budget surpluses, but these are not permanent changes to the tax code. If you are considering a move based on a state's tax direction, check recent legislative news rather than relying on proposals or discussions.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. If you work remotely for a company in a no-income-tax state but live in a high-tax state, you typically owe income tax to your state of residence, not the state where your employer is located. Most states tax based on where you live, not where you work. Check your state's rules if you are working remotely across state lines.
If I retire and move to a no-income-tax state, do I still owe tax on my pension?
It depends on the state and the type of pension. Most no-income-tax states do not tax pensions, but a few have exceptions. Tennessee and New Hampshire tax some types of retirement income. Check the specific state's rules before moving. Some states also have reciprocal agreements with your former state.
Are there any downsides to living in a no-income-tax state besides higher sales tax?
Higher sales tax and property tax are the main trade-offs. Some no-income-tax states also have lower funding for schools and public services, though this varies widely. Research the specific state's school funding and public services before deciding. Cost of living in major cities can also be high regardless of tax policy.
Can I claim a deduction for state income tax if I live in a no-income-tax state?
No, because you pay no state income tax to deduct. However, you can deduct state and local sales taxes or property taxes (up to $10,000 combined) on your federal return if you itemize deductions. This is one small federal benefit of living in a no-income-tax state.