Nine states collect no state income tax on wages
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire taxes only dividend and interest income, not wages. The other eight tax neither wages nor investment income.
These nine 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 state income tax does not mean lower overall tax burden — a state with no income tax often has higher sales or property taxes to compensate.
If you live in one of these states or are considering moving to one, understanding how the state funds itself matters for your total tax picture. A state with no income tax but 8 percent sales tax may cost you more than a state with 5 percent income tax and 6 percent sales tax, depending on whether you earn wages, receive investment income, or spend most of your money on taxable goods.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
- New Hampshire taxes investment income (dividends and interest) but not wages, making it a partial exception.
- States without income tax typically rely on sales tax, property tax, corporate tax, and excise taxes instead.
- No state income tax does not mean you pay less overall — compare your state's sales and property tax rates to get a true picture.
- Federal income tax applies in all states regardless of whether your state collects income tax.
How these nine states fund government without income tax
Alaska funds state operations primarily through oil revenue and corporate taxes. The state also collects sales tax (no statewide rate, but local rates range from 0 to 7.5 percent) and property tax. Alaska has historically paid residents an annual dividend from oil reserves, though the amount fluctuates with oil prices and legislative decisions.
Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all rely heavily on sales tax. Florida's state sales tax is 6 percent; Nevada's is 6.85 percent; South Dakota's is 4.5 percent; Tennessee's is 9.55 percent (the highest in the nation); Texas is 6.25 percent; Washington is 6.5 percent; and Wyoming is 4 percent. All of these states also collect property tax and corporate income tax.
New Hampshire, which taxes investment income but not wages, funds itself through a 9 percent tax on dividends and interest, plus sales tax (no statewide rate; local rates vary), property tax, and corporate tax. The state also collects an 18 percent tax on business profits.
What "no state income tax" actually means for your paycheck
If you work in one of these nine states and earn $50,000 in wages, your state will not withhold state income tax from your paycheck. You will not file a state income tax return for wages. Federal income tax still applies — that comes out of your check regardless of which state you live in.
If you receive income from sources other than wages — rental income, self-employment income, capital gains, or dividends — the rules vary. Most of these nine states tax business income and capital gains. Tennessee and New Hampshire tax investment income. Check your specific state's rules if you have income beyond wages.
If you move to one of these states from a state that does collect income tax, you will see a real difference in your take-home pay from wages. If you move from one no-income-tax state to another, your paycheck stays the same, but your overall cost of living may shift depending on sales and property tax differences.
State-by-state breakdown of what is and is not taxed
| State | Wages Taxed? | Investment Income Taxed? | Primary Revenue Source |
|---|---|---|---|
| Alaska | No | No | Oil revenue, corporate tax, sales tax |
| Florida | No | No | Sales tax (6%), property tax, corporate tax |
| Nevada | No | No | Sales tax (6.85%), property tax, corporate tax |
| New Hampshire | No | Yes (9%) | Investment tax, property tax, corporate tax |
| South Dakota | No | No | Sales tax (4.5%), property tax, corporate tax |
| Tennessee | No | Yes | Sales tax (9.55%), property tax, corporate tax |
| Texas | No | No | Sales tax (6.25%), property tax, corporate tax |
| Washington | No | No | Sales tax (6.5%), property tax, corporate tax |
| Wyoming | No | No | Sales tax (4%), property tax, corporate tax |
How to calculate your actual tax burden in a no-income-tax state
Comparing states requires looking at more than income tax. Add up the state income tax rate (zero in these nine), the average sales tax rate, and the average property tax rate as a percentage of home value. Then estimate how much of your income goes to each category.
Example: You earn $60,000 per year and own a home worth $250,000. In Texas (no income tax, 6.25 percent sales tax, average property tax 1.8 percent of home value), you would pay roughly $3,750 in sales tax (assuming you spend 60 percent of income on taxable goods) and $4,500 in property tax, for a total of $8,250. In a state with 5 percent income tax, 5 percent sales tax, and 1.2 percent property tax, you would pay $3,000 in income tax, $1,800 in sales tax, and $3,000 in property tax, for a total of $7,800. The difference is real but depends on your specific situation.
If you receive investment income, the calculation changes. New Hampshire and Tennessee tax dividends and interest, which can add significantly to your bill if you have substantial investment accounts. The other seven states do not, which may make them more attractive if you live on investment income.
Federal income tax still applies everywhere
Living in a state with no state income tax does not reduce your federal income tax. The IRS collects federal tax from all residents of all states at the same rates. Your federal return looks identical whether you live in Texas or California.
Some people confuse state and federal taxes and believe they pay nothing to the government if they live in a no-income-tax state. That is not accurate. You still owe federal tax; you simply do not owe state income tax on top of it.
Frequently Asked Questions
Do I have to file a state tax return if I live in one of these nine states?
Not for wages. If you earn only wages and live in one of the eight states with no tax on investment income (all except New Hampshire and Tennessee), you have no state return to file. If you live in New Hampshire or Tennessee and have dividend or interest income, you must file a state return for that income only. If you have self-employment income or business income in any of these states, check your state's rules — most tax business income even without an income tax.
Can I deduct state income tax on my federal return if I live in a no-income-tax state?
No, because you do not pay state income tax. You can deduct other state and local taxes (sales tax or property tax) up to $10,000 per year on your federal return, but only if you itemize deductions rather than take the standard deduction. Most people take the standard deduction, so this does not apply.
If I move from a state with income tax to one without, do I owe both states for the year I move?
You owe income tax to your old state only for the months you lived there. Most states use a part-year resident calculation. You will file a part-year return in your old state for January through the month you moved, and a part-year return in your new state for the month you arrived through December. The exact rules vary by state, so contact both states' tax agencies with your move date.
Does living in a no-income-tax state help me get government benefits?
No. Federal benefits like Social Security, Medicare, Medicaid, and housing programs use federal income guidelines, not state income tax status. State benefits vary by state and depend on your actual income, not whether your state collects income tax. Living in a no-income-tax state does not change your income for benefit purposes.
Are there any hidden taxes in no-income-tax states I should know about?
No hidden taxes, but some states have higher excise taxes (on fuel, alcohol, or cigarettes) or unusual taxes you might not expect. Washington has a capital gains tax on certain investment sales. Some states tax specific business activities. Review your state's tax website or speak with a tax professional if you have income beyond wages.