Nine states have no income tax on wages or salaries
Nine U.S. states collect no income tax on wages, salaries, or other earned income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes only dividend and interest income, not wages.
These states fund government services through other means: sales tax, property tax, corporate tax, excise taxes on fuel or alcohol, or some combination. The absence of income tax does not mean these states are cheaper overall. A state with no income tax might have higher sales tax, property tax, or both, which can offset the savings for renters and homeowners.
If you are considering a move for tax reasons, the actual cost depends on your income type, where you own property, and how much you spend. Someone living on investment income might save more in a no-income-tax state than someone earning wages. A homeowner pays property tax regardless; a renter avoids it.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages; New Hampshire taxes only investment income.
- No-income-tax states typically charge higher sales tax or property tax to fund schools and services, so total tax burden depends on your spending and assets.
- If you work remotely for an out-of-state employer, you may owe income tax to your state of residence even if you work for a company in a no-tax state.
- Moving to a no-income-tax state for tax reasons makes the most financial sense if you earn significant investment income or own property you plan to sell.
How income tax works when you move states
Your state of residence — not where your employer is located — determines whether you owe state income tax on wages. If you live in a no-income-tax state and work there, you owe no state income tax on your paycheck. If you live in a state that taxes income and work remotely for a company in Alaska or Texas, you still owe tax to your state of residence.
Some states tax you based on where you worked during the year, not where you lived at year-end. If you moved mid-year, you may owe tax to both your old state and your new state for the months you lived in each. You file a part-year resident return in each state showing only the income earned while you lived there.
A few states have reciprocal agreements with neighboring states, meaning residents of one state who work in another do not owe tax to the work state. These are rare and apply only to specific state pairs. Check your state's tax authority website if you work near a state border.
Sales tax and property tax in no-income-tax states
States without income tax typically rely on sales tax to replace that revenue. Washington, Tennessee, and Texas have sales tax rates above 8 percent. Alaska has no statewide sales tax, but many municipalities charge local sales tax. New Hampshire has no sales tax or income tax on wages, making it unusual — it funds services largely through property tax and business taxes.
Property tax varies widely even within no-income-tax states. Texas property tax is among the highest in the nation by percentage of home value. Florida's property tax is moderate but includes a homestead exemption that reduces tax for primary residences. Wyoming has low property tax overall. If you own a home, compare property tax rates in the specific county where you plan to live, not just the state average.
Renters do not pay property tax directly, but landlords pass some of the cost to tenants through higher rent. A renter moving to a no-income-tax state might see rent that reflects high property tax, offsetting income tax savings.
Investment income and retirement in no-income-tax states
If you live on investment income — dividends, capital gains, interest — a no-income-tax state can produce real savings. You owe no state tax on these earnings in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming. New Hampshire taxes dividends and interest but not wages, so it is less attractive for investment income.
Retirees drawing from IRAs, 401(k)s, or pensions should check whether their state taxes retirement income specifically. Most no-income-tax states do not tax retirement distributions, but a few states (notably Tennessee) tax only investment income, not retirement account withdrawals. Verify the rules for your specific income sources before moving.
If you sell a home or investment property at a profit, you owe federal capital gains tax regardless of where you live. State income tax on capital gains applies only in states that tax income. Selling a rental property in Florida or Texas means no state capital gains tax, but selling in California or New York means state tax on the gain.
Federal tax does not change by state
Moving to a no-income-tax state does not reduce your federal income tax. You owe the same federal tax on wages, investment income, and capital gains whether you live in Alaska or New York. The only difference is state tax.
Federal tax brackets, deductions, and credits are the same for all residents. Your federal return looks identical whether you file from a no-tax state or a high-tax state. State tax is separate and filed on a different form.
How to determine your state of residence for tax purposes
Most states define residence as the place where you spend the most time during the year, where you own a home, or where you maintain a driver's license and voter registration. If you split time between two states, the state where you spend more than half the year usually claims you as a resident.
If you are moving to a no-income-tax state, update your driver's license, voter registration, and mailing address as soon as you arrive. Keep records showing when you moved — utility bills, lease or deed, mail forwarding dates — in case a state questions your residency. Some states audit people who claim residency in a no-tax state while maintaining ties to a high-tax state.
If you own a home in one state and rent in another, the state where you own property may claim you as a resident for tax purposes. Selling the home or establishing clear residency in the new state through a lease and updated ID helps resolve this.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
Yes. You owe income tax to the state where you live, not where you work or where your employer is based. Moving your legal residence to a no-income-tax state is the only way to stop owing state income tax on wages. Simply working remotely for a company in Texas does not exempt you if you live in California.
Is New Hampshire really a no-income-tax state?
New Hampshire has no tax on wages or salaries, but it taxes dividends and interest income at 5 percent. If you earn only wages, you owe no state income tax. If you live on investment income, New Hampshire taxes it, unlike Alaska or Florida. It is a partial exception to the no-income-tax rule.
What if I work in one state and live in another?
You owe income tax to your state of residence, not your work state. If you live in Florida and work in Georgia, you owe Florida tax (none) and Georgia tax on your wages. A few states have reciprocal agreements that exempt residents of neighboring states from work-state tax, but these are uncommon. Check your state's tax authority website.
Do no-income-tax states have lower overall taxes?
Not necessarily. States without income tax often charge higher sales tax or property tax. Texas has no income tax but high property tax. Washington has no income tax but high sales tax. Your total tax burden depends on whether you own property, how much you spend, and what type of income you earn. Calculate your specific situation before moving.
Can I claim residency in a no-income-tax state if I only visit?
No. You must actually live there — spend the majority of the year there, establish a home, and update your ID and voter registration. States audit people who claim residency in a no-tax state while living elsewhere. Falsely claiming residency can result in back taxes, penalties, and interest.