Nine states collect no income tax on wages or salaries
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax income from wages or salaries. New Hampshire also taxes interest and dividend income but not wages. These nine states fund government operations through sales tax, property tax, excise taxes, and other revenue sources instead.
The absence of state income tax does not mean these states are tax-free overall. A resident of Texas still pays federal income tax, property tax on a home, and sales tax on purchases. The difference is that your paycheck is not reduced by a state income tax withholding, and you do not file a state income tax return.
If you work in one of these states but live in another, the rules depend on where you live. Most states tax residents on income earned anywhere, regardless of where the work happens. A few states tax only income earned within their borders. Your state of residence determines your tax obligation, not your state of employment.
Key Takeaways
- Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire—do not tax wages or salaries.
- New Hampshire taxes interest and dividend income but exempts wages, making it a partial no-income-tax state.
- No state income tax does not mean no taxes; these states rely on sales tax, property tax, and other revenue sources.
- If you live in a state with income tax but work in a no-tax state, your state of residence determines whether you owe state tax.
- Moving to a no-income-tax state can reduce your overall tax burden, but the savings depend on your income level and spending habits.
How no-income-tax states fund government services
States without income tax must raise revenue through other channels. Sales tax is the primary source in most of these states. Texas, Washington, and Tennessee have sales tax rates between 8 and 9.5 percent. Florida's rate is 6 percent. Alaska has no statewide sales tax, though some municipalities impose local sales taxes.
Property tax is another major revenue source. Wyoming and South Dakota rely heavily on property tax to fund schools and local services. Nevada uses a combination of sales tax and property tax. These states often have higher property tax rates than states with income tax, which can offset the savings from no income tax if you own a home.
Excise taxes on fuel, alcohol, and tobacco also contribute. Alaska collects significant revenue from oil and gas production taxes. Some of these states impose business taxes or corporate taxes that do not apply to individuals. Understanding the full tax picture in a no-income-tax state requires looking at all these sources, not just the absence of income tax.
The difference between living and working in a no-tax state
If you live in a no-income-tax state, you do not file a state income tax return and no state tax is withheld from your paycheck. This applies whether you work within the state or remotely for an out-of-state employer. Your federal income tax obligation remains the same regardless of your state.
If you live in a state with income tax but work in a no-income-tax state, your home state usually taxes your wages anyway. Most states tax residents on all income, regardless of source. A few states—including Pennsylvania and Illinois—tax only income earned within their borders, so you would owe no state tax on wages earned in a no-tax state. Check your state's rules before assuming you owe nothing.
Remote workers should verify their state's rules before relocating. Some states tax residents on income earned anywhere in the world. Others have reciprocal agreements with neighboring states. If you work for a company based in a high-tax state but live in a no-tax state, your employer may still withhold based on the company's location rather than yours. Clarify this with your payroll department before a move.
How moving to a no-income-tax state affects your taxes
The tax savings from moving to a no-income-tax state depend on your income level and how much you spend. A person earning $50,000 per year in California (which has a 9.3 percent top rate) would save roughly $4,650 annually by moving to Texas, assuming the same income. Someone earning $100,000 would save approximately $9,300. These are rough estimates because actual savings vary based on deductions, credits, and other factors.
However, higher sales tax and property tax can reduce or eliminate these savings. If you own a home, compare property tax rates between your current state and the no-tax state you are considering. If you spend heavily on taxable goods, a higher sales tax rate will offset some income tax savings. A person who spends $30,000 per year on taxable items in a state with 8 percent sales tax pays $2,400 in sales tax annually.
The financial benefit of moving is largest for high earners and smallest for low-income households. Someone earning $200,000 per year saves far more by avoiding state income tax than someone earning $40,000. Conversely, low-income households may pay more in sales tax and property tax relative to their income, reducing or eliminating any benefit.
New Hampshire's partial exemption from income tax
New Hampshire taxes interest income and dividend income but does not tax wages or salaries. This makes it different from the other eight no-income-tax states. If you earn money from a job in New Hampshire, you owe no state tax. If you earn money from investments, you owe New Hampshire tax on that income.
New Hampshire's interest and dividend tax rate is 5 percent. This applies to interest from savings accounts, bonds, and CDs, as well as dividends from stocks and mutual funds. Capital gains (profit from selling an investment) are not taxed. Retirement account distributions, including from IRAs and 401(k)s, are not taxed if they come from contributions you made with after-tax dollars.
For wage earners, New Hampshire functions like the other no-tax states. For retirees living on investment income, New Hampshire's tax on dividends and interest may be a consideration. Someone with $50,000 in annual dividend income would owe $2,500 in New Hampshire tax. A person with the same income in a state with no income tax would owe nothing.
Tax residency and moving to a no-income-tax state
Establishing residency in a no-income-tax state requires more than just moving there. States define residency differently, but most require you to live in the state for a full tax year and demonstrate intent to stay. You typically need a driver's license, voter registration, and a permanent address in the state. Some states also look at where your family lives, where you own property, and where you maintain bank accounts.
If you move mid-year, your home state may tax you as a resident for the portion of the year you lived there. Your new state may not tax you until the following year. This creates a transition period where you may owe tax to both states. Some states offer credits to prevent double taxation, but you need to file returns in both places to claim them.
If you maintain a home in your former state or spend significant time there, that state may claim you are still a resident and tax your income. This is especially common in high-tax states like California and New York, which aggressively pursue residents who move away. Keep documentation of your move—lease or deed, utility bills, driver's license, voter registration—to prove your new residency if challenged.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
No. You must establish legal residency in the state, which typically requires living there for a full tax year and obtaining a driver's license and voter registration. Simply working in a no-tax state while living elsewhere does not exempt you from your home state's income tax. Your state of residence determines your tax obligation.
Will I save money by moving to a no-income-tax state?
It depends on your income, spending, and whether you own property. High earners save the most. However, higher sales tax and property tax in no-tax states can offset income tax savings. Compare the total tax burden—income, sales, and property taxes combined—between your current state and the state you are considering.
What if my employer withholds taxes for a state I do not live in?
Contact your payroll department and provide proof of residency in your actual state. Most employers will adjust withholding once you provide a new W-4 form or state tax form. If they do not, you can claim a credit on your home state's return for taxes withheld to another state, though this requires filing in both states.
Does New Hampshire tax retirement income?
New Hampshire does not tax wages or retirement account distributions (401(k)s, IRAs, pensions). It does tax interest and dividend income at 5 percent. If your retirement income comes entirely from a pension or IRA withdrawal, you owe no New Hampshire tax. If you have investment income, that portion is taxed.
Can a state tax me after I move away?
Yes, if the state believes you are still a resident. High-tax states like California and New York audit people who move away to verify they have truly relocated. Keep documentation of your move, establish residency in your new state through a driver's license and voter registration, and file a final return in your former state showing the date you left.