Which states don't tax income
Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes interest and dividend income but not wages. These states fund government operations through sales tax, property tax, excise tax, and business taxes instead.
The absence of state income tax does not mean these states are cheaper to live in overall. A state with no income tax often has higher sales tax or property tax to compensate. For example, Tennessee has no income tax but a 9.55% state sales tax. Washington has no income tax but a 6.5% state sales tax plus local additions that can reach 10.25%. The total tax burden depends on how much you earn, spend, and own property.
If you are considering a move to one of these states for tax reasons, compare your total state and local tax burden in your current state against the full tax picture in the state you are considering. A high earner might save money in a no-income-tax state; a low-income household might pay more in sales tax.
Key Takeaways
- Nine states collect no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only).
- States without income tax typically rely on sales tax, property tax, and business taxes, which may be higher than in income-tax states.
- Your total tax burden depends on your income level, spending habits, and whether you own property — not just the presence or absence of income tax.
- Moving to a no-income-tax state for tax savings requires calculating your actual tax liability in both your current state and the destination state.
How no-income-tax states replace that revenue
States without income tax must fund schools, roads, courts, and other services through other sources. The most common replacement is sales tax. Tennessee, Washington, and Texas all have sales tax rates between 6% and 10%, and local jurisdictions often add more. A person who spends $50,000 per year on taxable purchases in a state with 9% sales tax pays $4,500 in sales tax annually — a significant amount for lower-income households.
Property tax is another major revenue source. Florida and Texas, both no-income-tax states, have property tax rates that vary by county but often run 0.7% to 1.2% of home value annually. A home worth $300,000 in a county with 1% property tax costs $3,000 per year in property tax alone. Alaska has lower property tax rates but higher excise taxes on fuel and alcohol.
Some no-income-tax states also tax business income, capital gains, or specific industries. Washington taxes capital gains above $250,000 per year. Tennessee taxes investment income but not wages. These targeted taxes affect high earners and investors more than wage earners.
Who benefits most from living in a no-income-tax state
High earners benefit most from no state income tax. A person earning $200,000 per year in California (which has a 13.3% top income tax rate) pays roughly $26,600 in state income tax. The same person in Texas pays zero state income tax on that income. The savings are substantial and increase with income.
Retirees with pension or investment income may also benefit, depending on the state. Some no-income-tax states exempt pension income or Social Security, which reduces the tax burden on retirement income. However, this varies by state — Tennessee taxes investment income, while Florida does not.
Lower-income households often pay more in sales and property tax in no-income-tax states than they would in income-tax states, because sales tax and property tax are regressive — they take a larger percentage of income from people who earn less. A household earning $30,000 per year spends a higher percentage of income on food and household goods (which are taxed) than a household earning $150,000.
State-by-state breakdown of tax structure
| State | State Income Tax | State Sales Tax | Property Tax Range | Notable Features |
|---|---|---|---|---|
| Alaska | None | None (local only) | 0.84%–1.19% | High excise taxes on fuel and alcohol; oil dividend payments to residents |
| Florida | None | 6% (local adds 0.5%–2%) | 0.71%–0.98% | No tax on pensions or Social Security; popular with retirees |
| Nevada | None | 6.85% (local adds up to 1.5%) | 0.6%–1.0% | No tax on gambling winnings; popular with high earners |
| South Dakota | None | 4.5% (local adds up to 4.5%) | 0.31%–0.82% | Lowest property tax rates in the nation; no capital gains tax |
| Tennessee | None on wages; 6% on investment income | 9.55% (highest in nation) | 0.71%–1.71% | Taxes interest and dividends but not wages; high sales tax |
| Texas | None | 6.25% (local adds up to 2%) | 0.6%–1.8% | No capital gains tax; large state with regional variation |
| Washington | None (capital gains tax above $250k) | 6.5% (local adds up to 3.9%) | 0.84%–0.98% | Capital gains tax on investment income over $250,000; no income tax on wages |
| Wyoming | None | 4% (local adds up to 2%) | 0.61%–0.84% | Lowest sales tax and property tax rates; no capital gains tax |
| New Hampshire | None on wages; 5% on interest and dividends | None | 0.85%–2.18% | No sales tax; taxes investment income only; higher property tax |
How federal tax filing works if you live in a no-income-tax state
Living in a state without income tax does not change your federal tax obligations. You still file a federal tax return with the IRS and pay federal income tax based on your income level. The only difference is that you do not file a state income tax return in that state.
If you work remotely for a company in a state with income tax, you may still owe income tax to your home state, not the state where your employer is located. The rules vary by state, but most states tax income based on where you live and work, not where your employer is based. Check with the state tax authority in both your current state and the state you are moving to if you work remotely.
Moving to a no-income-tax state: what to consider
Before relocating for tax reasons, calculate your actual tax burden in both states. Use your most recent tax return to estimate state income tax in your current state, then estimate sales tax and property tax in the destination state based on your expected spending and housing costs. Many online tax calculators can help with this comparison.
Consider also the cost of living beyond taxes. Housing costs, transportation, healthcare, and childcare vary widely and may offset any tax savings. A state with no income tax but high housing costs may not be cheaper overall than a state with income tax and lower housing costs.
If you are retired or receiving income from investments, check whether the no-income-tax state taxes pensions, Social Security, or investment income. Some states exempt these sources, while others tax them. This can significantly affect your retirement tax burden.
What happens if you move from a state with income tax
When you move to a no-income-tax state, you are no longer required to file that state's income tax return once you establish residency in the new state. However, you may owe income tax to your previous state for the portion of the year you lived there. Most states require you to file a part-year resident return for the months you lived in the state.
Establishing residency in a new state typically requires obtaining a driver's license, registering your vehicle, and updating your address with the IRS. Keep documentation of your move date, new address, and proof of residency (lease, utility bill, or mortgage statement) in case your previous state questions your residency change.
If you own property in your previous state, you may still owe property tax there even after moving. Rental property, vacation homes, and other real estate trigger ongoing tax obligations in the state where the property is located, regardless of where you live.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from it?
No. Some states allow nonresidents to claim residency for tax purposes if they meet certain conditions, though this is uncommon and often challenged. The standard rule is that you owe income tax to the state where you live and work. Moving is the most straightforward way to change your state tax burden.
Is New Hampshire really a no-income-tax state?
Partially. New Hampshire has no income tax on wages, but it taxes interest and dividend income at 5%. If your income comes entirely from wages, you pay no state income tax. If you have investment income, you owe tax on that portion. New Hampshire also has no sales tax, which can offset the investment income tax for some residents.
Will moving to a no-income-tax state save me money?
It depends on your income level and spending habits. High earners usually save money. Lower-income households often pay more in sales and property tax. Calculate your total tax burden in both states using your actual income, expected spending, and housing costs before deciding.
Can my previous state tax me after I move?
Your previous state can tax you for income earned while you lived there. You typically file a part-year resident return for the months you lived in the state. After you establish residency elsewhere, you generally owe no further income tax to your previous state, though property tax obligations continue if you own real estate there.
What if I work remotely for a company in a state with income tax?
You owe income tax to the state where you live and work, not the state where your employer is based. If you live in a no-income-tax state and work remotely for a company in California, you owe no state income tax. However, some states have reciprocal agreements or special rules — check with both state tax authorities to be certain.