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 from wages or salaries. New Hampshire taxes only interest and dividend income, not wages. The other eight tax neither wages nor investment income.
These states fund schools, roads, police, and other services through sales tax, property tax, excise taxes on fuel and alcohol, and business taxes instead. The trade-off varies by state: some have higher sales tax, others rely more on property tax or specific industry taxes like oil extraction fees.
If you are considering a move or wondering whether your state income tax bill will change, the answer depends on where you live now and where you would move. A state with no income tax does not automatically mean lower total taxes — you may pay more in sales or property tax instead.
Key Takeaways
- Nine states impose no tax on wage income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only).
- States without income tax fund services through sales tax, property tax, excise taxes, and business taxes, so your total tax burden depends on how much you spend and own property.
- Moving to a no-income-tax state does not reduce your federal income tax, which applies regardless of where you live.
- Some no-income-tax states have higher sales tax rates (up to 7.25% in Tennessee and 8.875% in Washington) to replace lost income tax revenue.
How states without income tax replace that revenue
A state that does not collect income tax must raise money another way. The most common replacement is sales tax — a percentage added to purchases at checkout. States with no income tax tend to have sales tax rates between 5% and 9%, depending on the state and sometimes the county.
Property tax is the second major source. Homeowners and landlords pay annual tax on the value of real estate. In some no-income-tax states, property tax rates are moderate; in others, they are high enough to offset the lack of income tax. Texas, for example, has no income tax but property tax rates that rank among the highest in the nation.
States also use excise taxes — taxes on specific goods like gasoline, cigarettes, and alcohol — and business taxes on corporate profits or gross receipts. Alaska funds much of its budget through oil extraction taxes and royalties. Each state's mix is different, so the actual cost of living varies even among no-income-tax states.
Comparison of tax burden across no-income-tax states
| State | Sales Tax Rate | Property Tax (Typical) | Other Major Taxes |
|---|---|---|---|
| Alaska | 0% (local varies) | Low | Oil extraction, fishing licenses |
| Florida | 6% | Low to moderate | Corporate income tax |
| Nevada | 8.375% | Low to moderate | Gaming taxes, business taxes |
| South Dakota | 4.5% | Moderate | Business taxes |
| Tennessee | 9.55% | Low | Business taxes |
| Texas | 8.25% | High | Business taxes, oil extraction |
| Washington | 10.25% | Low to moderate | Business taxes, capital gains tax (limited) |
| Wyoming | 4% | Low | Mineral extraction, business taxes |
| New Hampshire | 0% | High | Interest and dividend tax |
Sales tax rates shown are state rates only and do not include local or county additions, which can raise the total significantly. Property tax is listed as typical for homeowners in each state and varies by county and municipality. These figures change year to year and should be verified with your state's tax authority before making financial decisions.
Federal income tax still applies in no-income-tax states
Living in a state with no income tax does not reduce your federal income tax obligation. You still owe federal tax on wages, investment income, and other sources of income, regardless of which state you live in. Federal tax rates and brackets are the same for all residents of the United States.
The only tax you avoid by moving to a no-income-tax state is the state income tax itself. If you earn $60,000 per year, you owe the same federal tax whether you live in Texas or California. The difference is that Texas will not tax that income at the state level, while California will.
Who benefits most from living in a no-income-tax state
High earners with substantial wage income benefit most from no-income-tax states because they avoid state income tax on large paychecks. Someone earning $150,000 per year saves thousands in state tax by living in Texas instead of a state with a 5% income tax.
Retirees living on Social Security and pensions may also benefit, depending on the state. Some no-income-tax states do not tax retirement income, while others do. Alaska and Nevada, for example, do not tax any income, including pensions. New Hampshire taxes investment income but not wages or pensions, making it attractive to retirees with modest investment returns.
People with low incomes or those who spend most of their money on taxable goods may pay more in total taxes in a no-income-tax state because sales tax affects every purchase. A person earning $25,000 per year who spends most of it on groceries, gas, and rent may pay more in combined sales and property tax than they would in state income tax elsewhere.
States that recently changed their tax status
Most of the nine no-income-tax states have had that status for decades. However, tax law changes over time. Washington State introduced a capital gains tax in 2022, though it applies only to the sale of long-term investments and not to wages. New Hampshire has historically taxed only investment income, not wages, but has debated changes to that rule.
Before moving for tax reasons, check the current tax code for your target state. State legislatures can pass new taxes or change existing ones. What is true today may not be true in five years.
Frequently Asked Questions
Does moving to a no-income-tax state save me money on taxes?
Not necessarily. You save on state income tax but may pay more in sales tax, property tax, or both. The total depends on your income level, how much you spend, and how much property you own. A high earner usually saves; a low-income person who rents may not.
Can I claim residency in a no-income-tax state to avoid taxes in my home state?
No. States use multiple tests to determine residency, including where you spend most of your time, where your family lives, and where you own property. Simply claiming residency without actually moving is tax fraud. You must genuinely relocate and establish ties to the new state.
Does New Hampshire tax retirement income?
New Hampshire does not tax wages or pensions, but it does tax interest and dividend income at 5%. If your retirement income comes entirely from Social Security or a pension, you owe no state tax. If you have investment accounts, you pay tax on the earnings.
Which no-income-tax state has the lowest overall taxes?
That depends on your situation. Wyoming and South Dakota have low sales tax and low property tax, making them attractive to low-income residents. Alaska has no state sales tax and no income tax, but property tax varies by municipality. Compare your specific situation against each state's tax code.
If I work remotely for a company in another state, which state taxes my income?
Your home state taxes your income, not the state where your employer is located. If you live in Texas and work remotely for a company in New York, Texas does not tax your income (because Texas has no income tax), and New York does not tax it either (because you do not live there). You owe only federal tax.