Nine states do not collect income tax on wages, interest, or dividends
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax income earned from work, investments, or retirement accounts. New Hampshire taxes only interest and dividend income, not wages. The other eight tax nothing from those sources.
This does not mean these states have no taxes at all. They fund schools, roads, and services through sales tax, property tax, excise tax on fuel and alcohol, and corporate taxes. The mix varies by state. A state with no income tax might have a higher sales tax or property tax than a neighboring state that does tax income.
Moving to a no-income-tax state can lower your tax bill if you earn significant wages or investment income. It has no effect if you are retired and live on Social Security alone, since Social Security is not taxed by any state. The real savings depend on your income level and what you spend money on.
Key Takeaways
- Nine states impose no tax on wages, investment income, or retirement account withdrawals, though they fund government through other taxes.
- New Hampshire taxes interest and dividends but not wages, making it a partial no-income-tax state.
- Moving to a no-income-tax state saves money only if you earn wages or investment income; Social Security and disability benefits are not taxed by any state regardless.
- A no-income-tax state often charges higher sales tax or property tax to replace that revenue, so total tax burden depends on your spending and property ownership.
- If you work remotely for an out-of-state employer, your home state's tax rules apply to your wages, not your employer's state.
How income tax works when you move states
Your state of residence determines which state taxes your income. If you move to Texas and work there, Texas does not tax your wages even though your employer might be based in New York. If you work remotely for a New York company but live in Texas, Texas still does not tax you — your employer's location does not matter.
The exception is if you move mid-year. You may owe income tax to both your old state and your new state for the months you lived in each. Some states offer credits to prevent double taxation, but you have to file in both places. Moving on January 1 or July 1 simplifies this, though the tax code does not care about calendar convenience.
If you own property in a state you no longer live in, that state may still tax you on income from that property — rental income, for example. You do not escape a state's tax by moving; you escape it by no longer being a resident and no longer earning income there.
The nine no-income-tax states and what they tax instead
| State | Wages Taxed | Main Revenue Sources |
|---|---|---|
| Alaska | No | Oil revenue, sales tax, property tax |
| Florida | No | Sales tax, property tax, corporate tax |
| Nevada | No | Sales tax, gaming tax, property tax |
| South Dakota | No | Sales tax, property tax, corporate tax |
| Tennessee | No | Sales tax, property tax, corporate tax |
| Texas | No | Sales tax, property tax, corporate tax |
| Washington | No | Sales tax, property tax, capital gains tax |
| Wyoming | No | Sales tax, property tax, mineral extraction tax |
| New Hampshire | No | Interest and dividend tax, sales tax, property tax |
Sales tax in these states ranges from 4 percent to 10 percent depending on the state and the county. Property tax rates also vary widely — Texas property tax is higher than average, while Alaska's is lower. If you spend most of your money on goods and services, a high sales tax state costs you more than a high income tax state would. If you own a home, property tax matters more.
Washington and Tennessee recently added taxes on capital gains (profit from selling stocks or other investments), though the details and thresholds differ. These are newer additions and the rules may change. Check the current year's tax code if you have significant investment income.
When a no-income-tax state actually saves you money
The math depends on your income and spending. A person earning $100,000 a year in wages saves the most by moving to a no-income-tax state, because they avoid state income tax entirely. A person earning $30,000 a year saves less in absolute dollars, though the percentage savings is the same. A person living on Social Security saves nothing, because no state taxes Social Security.
If you own a home, property tax matters as much as income tax. Texas has no income tax but charges property tax around 1.6 to 1.8 percent of home value per year. A $300,000 home costs $4,800 to $5,400 per year in property tax. A state with income tax but lower property tax might cost you less overall. Run the numbers for your specific situation before deciding to move.
Retirees drawing from retirement accounts (401k, IRA) benefit from no income tax on those withdrawals. A person taking $50,000 per year from a retirement account in a state with 5 percent income tax pays $2,500 per year in state tax. In a no-income-tax state, that $2,500 stays in their pocket. This is one of the strongest reasons people move to these states after retirement.
How to establish residency in a no-income-tax state
Residency is not automatic when you move. You must take steps to show you intend to live there permanently. The IRS and state tax authorities look at where you spend most of your time, where you own property, where you register your vehicle, and where you hold a driver's license.
To establish residency, get a driver's license in the new state, register your vehicle there, and update your address with your bank, employer, and the IRS. If you own a home, that helps. If you rent, a lease with your name on it works. Do not maintain a home in your old state — owning property in two states can make you a resident of both for tax purposes.
Some states require you to physically be there for a certain number of days per year. Florida and Texas do not have a specific day requirement, but you must show you live there. If you spend nine months in Florida and three months in another state, you are a Florida resident. If you split time equally, you may be a resident of both.
What happens if you work remotely for an out-of-state employer
Your home state taxes your wages, not your employer's state. If you live in Texas and work remotely for a company in California, you pay no state income tax on those wages. California does not tax you because you do not live or work there. Texas does not tax you because it has no income tax.
The only exception is if your employer requires you to work in their state for part of the year. If you work in California for three months and in Texas for nine months, you may owe California tax on the income you earned while physically in California. This is rare for fully remote workers, but it happens when companies require office time.
Some employers withhold taxes based on where the employee lives, not where the company is based. If your employer withholds based on your home address and you live in a no-income-tax state, they should not withhold state income tax. Check your pay stub to confirm.
State income tax versus federal income tax
Federal income tax applies everywhere in the United States. No state can eliminate it. Moving to a no-income-tax state saves you state tax only, not federal tax. Your federal tax bill stays the same whether you live in Alaska or New York.
The federal tax brackets and rates change each year. For 2024, a single person earning $50,000 pays roughly $5,000 to $6,000 in federal income tax, depending on deductions. A state with 5 percent income tax would add $2,500 on top of that. Moving to a no-income-tax state eliminates the $2,500 state portion but not the federal portion.
If you are self-employed, you also pay self-employment tax (Social Security and Medicare tax) to the federal government. This applies everywhere and does not change based on where you live. State income tax is separate from self-employment tax.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
Yes. You must establish residency in the state to avoid its income tax. Simply working in a no-income-tax state does not protect you if you live elsewhere. Your home state taxes your income based on where you live, not where you work.
Will I pay less in total taxes if I move to a no-income-tax state?
Not necessarily. No-income-tax states fund government through sales tax and property tax, which may be higher than in income-tax states. Calculate your total tax burden — income tax plus sales tax plus property tax — before moving. The answer depends on your income, spending, and whether you own property.
Can I claim residency in a no-income-tax state if I only own a vacation home there?
No. Owning a vacation home does not make you a resident. You must show you live there most of the year. The IRS looks at where you spend the majority of your time, where you maintain your primary home, and where you have community ties like a job or family.
Does Social Security get taxed differently in no-income-tax states?
No. No state taxes Social Security, whether it has income tax or not. Moving to a no-income-tax state does not change your Social Security tax status. However, some states do tax other retirement income like pensions or IRA withdrawals, so check the specific rules if you have multiple income sources.
What if I move to a no-income-tax state mid-year?
You may owe income tax to both your old state and your new state for the months you lived in each. File a part-year resident return in both states. Some states offer credits to prevent paying tax twice on the same income, but you must file in both places to claim the credit.