Nine states collect no income tax on wages or salaries

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages or salary income. New Hampshire taxes only interest and dividend income, not wages. If you live or work in one of these states, you will not owe state income tax on money you earn from a job, though you still owe federal income tax to the IRS.

The absence of state income tax does not mean these states have no taxes at all. Most fund government services through sales tax, property tax, corporate tax, or some combination. Alaska and Nevada have no sales tax, but both use other revenue sources. Understanding what taxes your state does collect matters when you plan a move or calculate your total tax burden.

If you work in one state but live in another, the state where you work usually has the right to tax your wages first. Some states have reciprocal agreements that let you avoid double taxation, but the rules vary. Knowing your specific situation — where you live, where you work, and whether your states have an agreement — determines what you actually owe.

Key Takeaways

  • Nine states impose no tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming; New Hampshire taxes only investment income, not wages.
  • No state income tax does not mean no taxes — these states use sales tax, property tax, corporate tax, or other revenue sources to fund services.
  • If you work in a state with income tax but live in a state without it, you typically owe tax to the state where you work unless the two states have a reciprocal agreement.
  • Moving to a no-income-tax state can lower your state tax burden, but the total cost of living depends on that state's sales tax, property tax, and other fees.

How no-income-tax states fund government services

States without income tax rely on other sources of revenue. Sales tax is the most common replacement. Washington, Texas, and Florida all use sales tax as a major revenue source; rates range from 5.85% in Washington to 7.5% in Texas and Florida. When you buy goods or services in these states, you pay the difference in tax at the register.

Property tax is another major source. Texas and Florida both collect significant property tax on real estate. If you own a home in a no-income-tax state, your annual property tax bill may be higher than in a state that taxes income. The trade-off varies by location — a high-income earner might pay less overall in Texas despite property tax, while a retiree on a fixed income might pay more.

Some no-income-tax states use corporate tax or business tax to make up the difference. Nevada and South Dakota both tax business income. Alaska funds much of its government through oil revenue and a sovereign wealth fund rather than broad-based taxes. The point is simple: no income tax does not mean low taxes overall, only that the burden falls on different things.

What happens if you work in one state and live in another

The state where you work usually has the first claim on your wages. If you live in Florida but work in Georgia, Georgia can tax your income even though you do not live there. You would owe Georgia state income tax on your wages. However, Florida would not tax that same income because Florida has no income tax.

Some states have reciprocal tax agreements that change this rule. If two states have a reciprocal agreement, you typically owe tax only to the state where you live, not where you work. The states with reciprocal agreements are mostly in the Northeast and Midwest — Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio, Pennsylvania, Virginia, and Wisconsin. If you live in one of these states and work in another on the list, check whether your specific pair has an agreement.

The safest approach is to contact the tax authority in both your home state and work state before you start a job across state lines. They can tell you which state taxes your wages and whether you need to file in both places. Many employers also have payroll departments that know the rules for their location and can explain what will be withheld from your check.

States with partial income tax (New Hampshire)

New Hampshire taxes only interest income and dividend income, not wages or salary. If you earn money from a job, you owe no New Hampshire state tax. If you earn money from investments — interest on a savings account, dividends from stocks, capital gains — you owe New Hampshire tax on that income at a rate of 5%.

This matters most to retirees who live on investment income or people with significant stock portfolios. A wage earner who lives in New Hampshire and has little investment income will owe no state tax. Someone who lives on dividends and interest will owe the 5% tax on that income. New Hampshire also has no sales tax, making it attractive to people who want to avoid both income and sales tax, though property tax is relatively high.

How moving to a no-income-tax state affects your total tax bill

The decision to move for tax reasons requires looking at the whole picture, not just income tax. A person earning $100,000 per year might save thousands by moving from a high-income-tax state like California or New York to Texas or Florida. But that same person might pay more in sales tax and property tax in the new state, which could offset some or all of the income tax savings.

The math depends on your specific situation: how much you earn, how much you spend, whether you own property, and what state you are leaving. A high-income earner who rents and spends little might save significantly. A retiree on a fixed income who owns a home might not save anything. Tax software and state tax authority websites often have comparison tools, but the most reliable way is to calculate your actual tax bill in both states using your real income and expenses.

Moving also has non-tax costs and benefits — job availability, cost of living, climate, family proximity. Tax savings should be one factor in the decision, not the only one. If you are considering a move partly for tax reasons, calculate the actual difference before you commit.

How to report income if you live in a no-income-tax state

You still owe federal income tax to the IRS even if your state has no income tax. When you file your federal return, you report all your income and pay federal tax based on your filing status and income level. The fact that your state does not tax that income does not change your federal obligation.

If you work in a state with income tax but live in a no-income-tax state, you file a return in the state where you work and report the income you earned there. You also file a federal return. Your employer's payroll department will withhold both federal tax and the state tax where you work from your paycheck. At tax time, you reconcile what was withheld against what you actually owe.

If you are self-employed or have income from multiple states, the process is more complex. You may need to file returns in more than one state and pay estimated taxes quarterly. A tax professional or your state's tax authority can walk you through the specific steps for your situation.

Frequently Asked Questions

Do I still have to pay federal income tax if I live in a no-income-tax state?

Yes. Federal income tax is separate from state income tax. Everyone in the United States owes federal tax to the IRS based on their income, regardless of which state they live in. Living in a no-income-tax state only removes the state portion of your tax bill.

If I move to Texas from California, how much will I save on taxes?

That depends on your income, how much you spend, and whether you own property. California's top income tax rate is 13.3%; Texas has no income tax. But Texas has a 7.5% sales tax and property tax, while California has a 7.25% sales tax and lower property tax in many areas. Calculate your actual bill in both states using your real numbers rather than guessing.

What if I work in Florida but live in Georgia?

Georgia will tax your wages because you work there. Florida will not tax you because you do not live there. You owe Georgia state income tax on your salary. Check with Georgia's Department of Revenue to confirm the rate and whether you need to file a return.

Does New Hampshire tax retirement income?

New Hampshire does not tax wages or salary at any age. If you are retired and receiving a pension or 401(k) withdrawal that counts as wages, you owe no New Hampshire tax. If your retirement income comes from interest, dividends, or capital gains, you owe the 5% tax on that portion.

Can I claim a tax deduction for living in a no-income-tax state?

No. You cannot deduct state income tax you did not pay. However, if you paid income tax to another state, you may be able to claim a credit for that tax on your federal return, depending on your situation. Consult a tax professional or the IRS website for details on your specific case.