Nine states collect no state 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 taxes only investment income and retirement distributions, so residents who earn only wages pay nothing to the state on that income. The other eight states 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 tax burden simply comes from different places than it does in the 41 states that tax income.
If you live in one of these states or are considering a move, understanding what you do pay taxes on matters more than the headline. A state with no income tax but high sales tax may cost you the same or more than a state with income tax and lower sales tax.
Key Takeaways
- Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
- No-income-tax states fund government through sales tax, property tax, and corporate tax instead, so your total tax burden depends on how much you spend and own.
- New Hampshire residents who earn only wages and salaries owe nothing to the state, but retirees drawing from IRAs or investment accounts do pay tax.
- Moving to a no-income-tax state does not automatically lower your taxes if you own property or spend heavily on taxed goods.
How each no-income-tax state funds government
Alaska relies heavily on oil revenue and has no state sales tax, making it unusual among no-income-tax states. Property tax and corporate tax provide additional revenue. Residents pay no income tax and no statewide sales tax, though some municipalities add local sales tax.
Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all use sales tax as their primary revenue source. Sales tax rates in these states range from roughly 4 percent to 7.25 percent at the state level, with local additions pushing totals higher in some counties. Property tax also funds schools and local services.
New Hampshire taxes investment income, interest, and dividends at 5 percent, and taxes retirement account withdrawals. It has no sales tax but funds schools and services through property tax and business taxes. A New Hampshire resident who works for wages and has no investment income pays no state tax.
What you actually pay in no-income-tax states
A state with no income tax is not necessarily cheaper to live in. Consider what you spend money on:
- Sales tax: If you buy groceries, clothing, and household goods, you pay sales tax on most of those purchases in no-income-tax states. Over a year, this adds up. A family spending $50,000 on taxable goods in a state with 7 percent sales tax pays $3,500 in sales tax alone.
- Property tax: No-income-tax states often fund schools through property tax, which can be higher than in income-tax states. Property tax rates vary widely by county and state.
- Gas tax: All states tax gasoline. Rates vary, but this is a cost you cannot avoid.
- Corporate and business tax: Some no-income-tax states tax business income or corporate profits, which can affect self-employed people and small business owners.
A person earning $60,000 a year in Texas (no income tax, 8.25 percent sales tax in many areas) might pay less total tax than someone earning the same in a state with 5 percent income tax and 6 percent sales tax — but only if they do not own expensive property or spend heavily on taxed goods.
How New Hampshire's tax on investment income works
New Hampshire taxes interest and dividends at 5 percent. This applies to earnings from savings accounts, bonds, stock dividends, and similar investments. It does not apply to capital gains (profit from selling an asset for more than you paid).
Retirement account withdrawals are taxed as follows: distributions from traditional IRAs and 401(k)s are taxed at 5 percent. Distributions from Roth IRAs and Roth 401(k)s are not taxed. Social Security benefits are not taxed in New Hampshire.
If you are retired and living on Social Security and Roth withdrawals, you owe no New Hampshire state tax. If you are retired and drawing from a traditional IRA, you owe 5 percent on those withdrawals.
Moving to a no-income-tax state for tax reasons
Tax residency depends on where you actually live, not where you claim to live. If you move to a no-income-tax state, you must establish residency there — typically by obtaining a driver's license, registering to vote, and renting or buying a home. Simply keeping a mailing address in your old state does not make you a resident there for tax purposes.
Your old state may still tax income you earned while living there, even after you move. If you worked in a state for part of the year and moved mid-year, you may owe tax to both states for the portion of the year you lived in each.
Some states tax retirement income differently depending on when you retired. If you are considering a move based on tax savings, speak with a tax professional about your specific situation, because the rules vary by state and by type of income.
Frequently Asked Questions
Do I have to pay federal income tax if I live in a no-income-tax state?
Yes. Federal income tax is separate from state income tax. All U.S. residents owe federal tax on income above the annual threshold, regardless of which state they live in. No state can exempt you from federal tax.
If I move to Texas or Florida, will my taxes go down?
Not necessarily. It depends on your income type, how much you spend, and whether you own property. A high earner with investment income might pay less in a no-income-tax state. Someone who owns an expensive home might pay more in property tax. Compare your total tax burden in both states before deciding.
Can I claim residency in a no-income-tax state if I work remotely for a company in another state?
Yes, if you actually live in the no-income-tax state. Your employer's location does not determine your tax residency — where you live does. However, some states tax remote workers based on where the employer is located. Check the rules for both your current state and the state where you want to move.
Is New Hampshire's tax on retirement income the same as income tax?
No. New Hampshire calls it the "interest and dividends tax" and taxes only investment income and retirement withdrawals, not wages. A person earning $80,000 in wages and $5,000 in investment income pays tax only on the $5,000.
Do no-income-tax states have lower overall tax rates than income-tax states?
Not always. Total tax burden depends on sales tax, property tax, and how much you earn and spend. A state with 7 percent sales tax and high property tax can cost more than a state with 5 percent income tax and lower property tax. Run the numbers for your specific situation.