Nine states collect no income tax on wages, and two more tax only investment income
Nine states do not tax wages, salaries, or other earned income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. Two additional states—New Hampshire and Tennessee—also do not tax investment income like dividends and capital gains, though New Hampshire does tax interest and dividends at a lower rate than other states.
No state has zero taxes across the board. States without income tax typically fund services through sales tax, property tax, excise taxes on specific goods, and business taxes. The absence of income tax does not mean lower overall tax burden—some no-income-tax states have higher sales or property taxes than states with income tax.
If you are considering a move or managing income across state lines, understanding which states tax what matters for your actual take-home pay and long-term financial planning.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire impose no tax on wages or salary income.
- New Hampshire and Tennessee do not tax investment income like stock dividends and capital gains, though New Hampshire taxes interest at a lower rate.
- States without income tax fund services through sales tax, property tax, and business taxes, which may be higher than in income-tax states.
- Moving to a no-income-tax state does not automatically reduce your total tax burden if you pay more in sales or property tax.
The nine states with no income tax on wages
Alaska taxes neither wages nor investment income. It funds state services partly through oil revenue and a higher sales tax in some municipalities.
Florida has no income tax on wages or investments. It relies on sales tax (currently 6% state rate, higher with local additions) and property tax.
Nevada collects no income tax on wages or investments. Sales tax is 6.85% at the state level, and property tax varies by county.
South Dakota does not tax wages or investment income. Sales tax is 4.5% at the state level, with local options raising it higher in some areas.
Tennessee taxes neither wages nor investment income as of 2021, when the state phased out its Hall income tax on dividends and interest. It funds services through sales tax (9.55% combined state and average local rate) and property tax.
Texas has no income tax on wages or investments. It uses sales tax (6.25% state rate plus local additions) and property tax to fund services.
Washington does not tax wages or traditional investment income. It recently introduced a capital gains tax on long-term gains above a certain threshold, effective 2022.
Wyoming collects no income tax on wages or investments. Sales tax is 4% at the state level, and property tax rates vary by county.
New Hampshire stands apart: it taxes neither wages nor most investment income, but it does tax interest and dividends at 5% (as of 2024, though this rate has been subject to legislative changes). This makes New Hampshire a partial exception—residents pay tax on investment returns but not on salary.
How no-income-tax states fund services
States without income tax do not operate without revenue. They shift the tax burden to other sources, and the mix varies widely.
Sales tax is the primary replacement in most no-income-tax states. Combined state and local sales tax rates range from 4% in Wyoming to over 9% in Tennessee and Washington. A family that spends heavily on taxable goods pays more in sales tax than they would have paid in income tax in a high-income-tax state.
Property tax is significant in states like Texas and Florida. Property tax rates vary by county and municipality, but homeowners in these states often pay 0.5% to 1.2% of home value annually. Over time, property tax can exceed what income tax would have cost.
Excise taxes on fuel, alcohol, and tobacco are higher in many no-income-tax states to compensate for lost income tax revenue. A gallon of gasoline or a pack of cigarettes costs more in these states.
Business taxes and licensing fees also contribute. Some no-income-tax states impose higher corporate income taxes or franchise taxes on businesses to offset individual income tax loss.
Washington's capital gains tax: a recent shift
Washington introduced a 7% tax on long-term capital gains (profits from selling assets held over one year) in 2022, making it a partial exception to the no-income-tax rule. The tax applies only to gains above $250,000 per year per person, so it affects primarily high-income investors, not wage earners.
This change reflects a national trend: some states are experimenting with capital gains taxes as a way to tax investment income without taxing wages. If you are considering Washington and have significant investment income, factor this tax into your planning.
New Hampshire's interest and dividend tax
New Hampshire's tax structure is unique. The state taxes interest income and dividends at 5% but does not tax wages. This means a retiree living on investment income pays tax, while a wage earner does not.
New Hampshire has discussed eliminating this tax entirely, so the rate and scope may change. If you are planning a move to New Hampshire based on tax considerations, verify the current rules with the New Hampshire Department of Revenue Administration before deciding.
Total tax burden: income tax is only part of the picture
Comparing states by income tax alone is misleading. A person earning $75,000 in Texas (no income tax) might pay less total tax than someone earning the same amount in a state with 5% income tax—or more, depending on sales tax, property tax, and spending patterns.
A wage earner who rents and spends little on taxable goods benefits most from no-income-tax states. A homeowner or someone with high investment income may find the combined property and sales tax burden comparable to or higher than income tax in other states.
Use a tax calculator that accounts for your specific situation: your income source (wages, investments, or both), whether you own property, and your typical spending on taxable goods. This gives a more accurate picture than income tax rate alone.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid income tax?
No. You owe income tax to the state where you work and live, based on residency and employment location. If you work remotely for a company in a high-income-tax state but live in a no-income-tax state, you typically owe tax to your state of residence, not the company's location. Verify this with a tax professional, as rules vary by state.
If I move to a no-income-tax state, when do I stop paying income tax to my old state?
You stop owing income tax to your old state once you establish residency in the new state. This usually means registering to vote, getting a driver's license, and establishing a permanent home there. Some states require you to file a final return for the partial year. Contact your old state's revenue department for the exact process.
Are there any downsides to living in a no-income-tax state?
The main downside is higher sales and property tax. If you own a home or spend heavily on taxable goods, your total tax bill may be similar to or higher than in an income-tax state. Additionally, some no-income-tax states fund schools and services at lower levels than high-income-tax states, though this varies widely.
Does Social Security income count as taxable income in no-income-tax states?
No. In states without income tax, Social Security benefits are not taxed. This is one reason retirees often move to no-income-tax states. However, verify whether your state taxes other retirement income like pensions or IRA withdrawals, as rules vary.
What about federal income tax—does it change if I move to a no-income-tax state?
No. Federal income tax is the same regardless of which state you live in. Moving to a no-income-tax state reduces only your state income tax burden, not your federal tax obligation.