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 wages or salaries. New Hampshire taxes only interest and dividend income, not wages. The other eight tax neither wages nor investment income.
This does not mean these states have no taxes at all. They fund schools, roads, and services through sales tax, property tax, corporate tax, and excise taxes on fuel and cigarettes. The tax burden simply comes from different sources than it does in the 41 states that tax income.
If you live in one of these states or are considering a move, understanding how the tax structure works matters for your actual take-home pay and what you owe when you file federal taxes.
Key Takeaways
- Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only).
- No-income-tax states fund government through higher sales taxes, property taxes, and excise taxes, so your total tax burden depends on what you buy and own, not just what you earn.
- If you move to a no-income-tax state, you still file federal income tax returns and owe federal tax; state income tax is separate.
- Some no-income-tax states have higher property taxes or sales taxes than income-tax states, so moving for tax reasons requires comparing your full situation.
How no-income-tax states fund government services
States without income tax rely on sales tax as their primary revenue source. Sales tax rates in these states typically range from 4 percent to 7 percent, though some cities and counties add local sales taxes on top. Texas, for example, has a state sales tax of 6.25 percent, but many Texas cities charge an additional 1 to 2 percent.
Property tax is the second major funding source. Alaska has low property taxes statewide, but Texas and Florida property taxes can be substantial depending on the county. Washington state has no income tax but collects significant property tax revenue in many counties.
These states also tax specific goods and services: fuel excise taxes, cigarette taxes, alcohol taxes, and hotel occupancy taxes. Some charge corporate income tax or capital gains tax on certain transactions. The mix varies by state, which is why two no-income-tax states can have very different overall tax burdens.
What happens to your federal taxes if you live in a no-income-tax state
Living in a state without income tax does not change your federal income tax obligation. You still file a federal return with the IRS and pay federal tax on your wages, investment income, and other sources. Federal tax rates and rules apply the same way whether you live in Texas or California.
The only difference is that you will not file a state income tax return. If you move from an income-tax state to a no-income-tax state, you may need to file a final return in your old state for the months you lived there, but that is a one-time event.
Some people mistakenly believe that no state income tax means lower federal tax. It does not. The federal government and state governments are separate tax systems. Saving on state income tax is real money in your pocket, but it has no effect on what you owe the IRS.
Comparing total tax burden across states
The absence of income tax does not automatically mean you pay less tax overall. A person earning $60,000 per year in Texas (no income tax) might pay less total tax than someone earning the same amount in California (which has income tax), but a person who owns a home in Texas might pay more property tax than a homeowner in a lower-tax county in California.
The comparison depends on your situation: how much you earn, whether you own property, how much you spend on taxable goods, and whether you have investment income. A retiree living on investment income in New Hampshire (which taxes investment income) might face a higher tax bill than in a state with income tax but lower investment taxes.
If you are considering a move for tax reasons, calculate your likely taxes in both states using your actual income, property value, and spending patterns. State tax calculators and tax professionals can help with this comparison.
States that tax only investment income or specific types of income
New Hampshire is the only state in the no-income-tax group that taxes a specific type of income. It taxes interest and dividend income at 5 percent but does not tax wages or salaries. This means a wage earner in New Hampshire pays no state income tax, but someone living on investment income pays tax on that income.
Tennessee previously taxed investment income but phased out that tax; as of 2021, Tennessee collects no income tax on any source. A few other states have experimented with taxing only certain types of income, but the nine listed above represent the current landscape.
How to find your state's tax rate if you live elsewhere
If you live in a state that does tax income, your state tax rate depends on your income level and filing status. Most income-tax states use a progressive system, meaning higher earners pay a higher percentage. Some states have a flat tax rate that applies to everyone.
Your state's department of revenue website lists current tax rates and brackets. You can also use the IRS tax withholding estimator or a state-specific tax calculator to see what you owe. If you are self-employed or have investment income, you may owe estimated taxes to your state as well as federal taxes.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. You benefit from no income tax only if you are a resident of that state. Residency is usually determined by where you live for more than half the year and where you maintain a permanent home. If you work remotely for a company in a no-income-tax state but live in an income-tax state, you owe tax to your state of residence, not the state where your employer is located.
If I move to a no-income-tax state mid-year, do I owe state income tax for the months I lived elsewhere?
Yes, typically. You usually owe income tax to your old state for the months you lived there and to your new state for the months you lived there. You may need to file part-year returns in both states. The exact rules vary by state, so check with both states' revenue departments when you move.
Are no-income-tax states cheaper to live in overall?
Not necessarily. Some no-income-tax states have high property taxes, high sales taxes, or high costs of living that offset the income tax savings. Alaska and Wyoming have low overall tax burdens, but Florida and Texas vary widely by county. Compare your specific situation—housing costs, property taxes, sales taxes, and your income level—before assuming a move will save money.
Does New Hampshire really not tax wages?
Correct. New Hampshire taxes only interest and dividend income at 5 percent. Wages, salaries, and self-employment income are not taxed in New Hampshire. This makes it attractive to wage earners but not to retirees living on investment income.
Can I claim a deduction on my federal taxes for state income tax I don't pay?
No. The federal tax code allows you to deduct state and local taxes (SALT) that you actually pay, up to $10,000 per year. If you pay no state income tax, you cannot deduct it. You can deduct property taxes or sales taxes if you choose to itemize deductions, but only if they fall within the $10,000 limit.