Nine states collect no income tax on wages
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire also does not tax investment income, though it does tax interest and dividends at a low rate. These nine states fund government services through sales tax, property tax, corporate tax, and other revenue sources instead.
Living in a no-income-tax state does not mean you pay no state taxes overall. Most of these states have higher sales taxes to compensate — some above 8 percent. Property taxes also vary widely. A state with no income tax can still cost more to live in than a state with income tax, depending on your spending patterns and whether you own property.
If you work in one state but live in another, your home state's tax rules usually apply to your wages. You file taxes in the state where you live, not where you work. Some states have reciprocal agreements that change this, but those are rare and specific to certain border regions.
Key Takeaways
- Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
- No-income-tax states typically charge higher sales tax and property tax to fund services, so your total state tax burden depends on how much you spend and own.
- You pay income tax in your state of residence, not your state of work, unless a reciprocal agreement applies to your specific situation.
- Federal income tax applies in all states regardless of whether your state collects income tax.
How each no-income-tax state funds government
Alaska has no state income tax and no statewide sales tax, but collects significant revenue from oil and gas production. Property taxes are set by municipalities and vary by location. Alaska also taxes corporate income.
Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all rely heavily on sales tax, which ranges from 5.5 percent to 7.25 percent statewide before local additions. All seven also tax corporate income and business activity. Property tax rates vary by county within each state.
New Hampshire taxes wages at zero percent but taxes interest and dividends at 5 percent. It also collects sales tax (though groceries and clothing are exempt), property tax, and corporate tax. This structure means New Hampshire residents with investment income pay some state tax despite the lack of wage tax.
What happens if you move to or from a no-income-tax state
When you move to a no-income-tax state, you stop owing that state income tax on wages earned after your move date. You file your final return in your old state for income earned through your last day of residence there. Your new state's tax year begins on your first day of residence.
If you move from a no-income-tax state to one that collects income tax, you owe tax on wages earned in the new state starting immediately. You may also owe property tax or higher sales tax depending on the state. Some people moving from Alaska or Florida to income-tax states are surprised by the amount withheld from their first paychecks.
Retirement income rules differ by state. Some no-income-tax states exempt military pensions or public employee pensions from any tax they do collect. If you are planning retirement and considering a move, check the specific rules for pensions, Social Security, and investment income in your target state.
Remote work and state income tax in no-income-tax states
If you live in a no-income-tax state and work remotely for a company in another state, you owe no state income tax on your wages. Your home state does not tax your income, and your employer's state generally cannot tax wages earned by a resident of another state.
The exception is if you travel to your employer's state to work. Some states tax you on the portion of income earned within their borders. If you work remotely most of the year but spend two weeks in your employer's office, that state may claim tax on a portion of your annual pay. This is rare and depends on state law and your employer's payroll practices.
If you are considering a remote job while living in a no-income-tax state, confirm with your employer's payroll department where they will withhold tax. Most large employers withhold based on your home address, not your employer's location.
Federal taxes still apply everywhere
Living in a no-income-tax state does not reduce your federal income tax. You file a federal return and owe federal tax on your income regardless of which state you live in. Federal tax rates and brackets are the same for all residents.
Some people confuse state and federal tax and believe they owe nothing in a no-income-tax state. You still receive a W-2 from your employer, still file a federal return, and still have federal tax withheld from your paycheck. The only difference is that you do not file a state return or owe state income tax.
Comparing total tax burden across states
A no-income-tax state is not always cheaper than a state with income tax. The total amount you pay in state taxes depends on your income level, spending habits, and whether you own property.
A person earning $60,000 per year who rents an apartment and spends most of their income might pay less total state tax in a no-income-tax state with 7 percent sales tax than in a state with 5 percent income tax. But a homeowner in the same no-income-tax state might pay more in property tax than they would have paid in income tax elsewhere.
States with income tax often have lower sales tax and property tax. A state with 5 percent income tax, 5 percent sales tax, and moderate property tax might cost less overall than a no-income-tax state with 7 percent sales tax and high property tax. The math changes based on your personal situation.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
No. You owe state income tax only in the state where you live. If you live in a state with income tax, you owe that tax regardless of where you work or how much you earn. Moving is one option, but not required.
If I retire in a no-income-tax state, do I owe tax on my pension?
It depends on the state and the type of pension. Some no-income-tax states exempt military pensions entirely. Others exempt public employee pensions but not private pensions. Check your specific state's rules for the type of retirement income you will receive.
Can my employer withhold state tax if I live in a no-income-tax state?
Your employer should not withhold state income tax if you live in a no-income-tax state and work there. If your employer is withholding state tax, contact their payroll department and provide proof of your residency. You may be owed a refund for taxes withheld in error.
What if I work in a no-income-tax state but live in one that has income tax?
You owe income tax to your state of residence, not your state of work. You file your return in your home state and report all income, including wages earned in the no-income-tax state. Some states offer a credit for taxes paid to other states, but check your specific state's rules.
Are there any hidden taxes in no-income-tax states?
No hidden taxes, but yes to higher visible taxes. Sales tax is usually higher, property tax varies by county, and some states tax specific activities like gambling or vehicle registration. Review the tax structure of any state you are considering before moving.