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 earned from work. New Hampshire is the only one that taxes interest and dividend income, though it does not tax wages. These nine states fund government services through sales tax, property tax, excise tax, and other revenue sources instead.

The absence of state income tax does not mean these states are cheaper overall. Many have higher sales taxes or property taxes to compensate. A state with no income tax but a 9 percent sales tax may cost more than a state with 5 percent income tax and 6 percent sales tax, depending on how much you earn and spend.

If you are considering a move for tax reasons, the math depends on your specific income, spending, and property ownership. A high earner benefits more from no income tax than a low earner does. Someone who rents benefits more than someone who owns property, since property tax is often higher in no-income-tax states.

Key Takeaways

  • Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
  • New Hampshire taxes interest and dividend income but not wages, making it different from the other eight.
  • States without income tax typically charge higher sales tax or property tax to fund schools, roads, and services.
  • Moving to a no-income-tax state saves money only if your income is high enough to offset any increase in other taxes.

How each no-income-tax state funds government services

Alaska relies heavily on oil revenue and has no sales tax, though some municipalities charge local sales tax. Property tax is low statewide.

Florida has a 6 percent state sales tax and no property tax cap. It also taxes corporate income and has high insurance costs.

Nevada has a 6.85 percent sales tax and no property tax on vehicles. Property tax on real estate varies by county.

South Dakota has a 4.5 percent sales tax, one of the lowest among no-income-tax states. Property tax is moderate.

Tennessee has a 9.55 percent sales tax, the highest in the nation. It also taxes interest and dividend income at 1 percent, though this is scheduled to phase out by 2026.

Texas has a 6.25 percent state sales tax plus local options that can raise it to 8.25 percent. Property tax is high, averaging around 1.8 percent of home value.

Washington has a 6.5 percent sales tax and no property tax on vehicles. It also taxes capital gains on certain stock sales at 7 percent.

Wyoming has a 4 percent sales tax, one of the lowest in the country. Property tax is low.

New Hampshire has no sales tax but taxes interest and dividend income at 5 percent. Property tax is high, averaging around 2.1 percent of home value.

Income tax versus other taxes: the real cost comparison

A person earning $75,000 per year in a state with 5 percent income tax pays $3,750 in state income tax. In a no-income-tax state, they pay zero income tax but may pay more in sales tax and property tax over the year.

If that same person spends $40,000 per year and lives in a state with 8 percent sales tax, they pay $3,200 in sales tax. If they own a home worth $300,000 and pay 1.5 percent property tax, they pay $4,500 per year. Combined, that is $7,700 in other taxes — more than the $3,750 income tax in the comparison state.

However, someone earning $150,000 per year would pay $7,500 in income tax in the comparison state. The same person in a no-income-tax state might still pay $7,700 in sales and property tax combined, but the gap narrows or reverses depending on spending and property value. Higher earners benefit most from no income tax.

Which states tax retirement income and investment income

Some no-income-tax states make exceptions for specific types of income. Tennessee taxes interest and dividend income at 1 percent (scheduled to end in 2026) but not wages. New Hampshire taxes interest and dividend income at 5 percent but not wages or salaries.

If you receive retirement income from a pension, 401(k), or IRA, most no-income-tax states do not tax it. However, you should verify the rules for your specific state and income type before moving, since rules change and some income sources may be treated differently.

Federal income tax applies in all states regardless. No state can eliminate federal tax on wages, retirement income, or investments.

How to calculate whether a move makes financial sense

Start by finding your current state income tax bill. Multiply your annual income by your state's income tax rate, or look at your last state tax return.

Next, research the sales tax and property tax rates in the no-income-tax state you are considering. Use online calculators or contact the state revenue department to estimate what you would pay on your typical annual spending and property value.

Add the estimated sales tax and property tax together and compare to your current state income tax. If the total is lower, a move may save money. If it is higher, you would likely pay more overall despite having no income tax.

Also factor in cost of living differences unrelated to taxes: housing prices, insurance, utilities, and wages. A state with no income tax but double the housing cost may not be cheaper in practice.

Remote work and state income tax in no-income-tax states

If you work remotely for a company based in another state, you may still owe income tax to that state, depending on where you live and where the company is located. Some states tax income earned by residents regardless of where the work happens. Others tax only income earned within their borders.

Moving to a no-income-tax state does not automatically free you from your previous state's income tax if you still work for an employer there. You should contact both your current state and the state you plan to move to, or consult a tax professional, to understand your obligations.

If you are self-employed or own a business, the rules are different again. Some no-income-tax states tax business income differently than wage income, or tax it not at all.

Frequently Asked Questions

Do I have to move to a no-income-tax state to avoid state income tax?

No. You must establish residency in the state, which typically means living there for at least part of the year and having a permanent address there. The specific rules vary by state. Some states consider you a resident if you spend more than half the year there; others look at where you own property or have a driver's license.

If I move to a no-income-tax state, do I still owe taxes to my old state?

Not if you establish residency in the new state and no longer work there. However, if you move mid-year, you may owe income tax to both states for the portion of the year you lived in each. You should file a part-year return in your old state and a full-year return in your new state, or consult a tax professional.

Which no-income-tax state is cheapest overall?

That depends on your income, spending, and whether you own property. Wyoming and South Dakota have low sales taxes and low property taxes, making them inexpensive for most people. Alaska has no sales tax but high housing costs. New Hampshire has no sales tax but very high property tax. Compare your specific situation against each state's tax rates.

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages or salaries, but it taxes interest and dividend income at 5 percent. If your income comes entirely from wages, you owe no state income tax. If you have investment income or retirement income from certain sources, you may owe tax.

Can I claim residency in a no-income-tax state if I only own property there?

Owning property alone does not establish residency for tax purposes. You must live there for part of the year and show intent to make it your permanent home. Rules vary by state, so contact the state revenue department or a tax professional to confirm what counts as residency in the state you are considering.