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 salary income. 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. Most fund government through sales tax, property tax, excise taxes, or some combination. The absence of income tax affects what you owe to the state, but not what you owe to the federal government — you still file a federal return and pay federal income tax regardless of where you live.
If you move to one of these states or receive income from one, understanding how the tax treatment works matters for your own filing. The rules differ depending on whether you are a resident, a nonresident, or someone who moved mid-year.
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 at the state level does not reduce your federal tax bill; you still file a federal return and pay federal income tax.
- These states fund government through sales tax, property tax, and other levies, which may be higher than in income-tax states.
- If you work in a no-income-tax state but live in one that taxes income, you may owe tax to your home state on that income.
- Moving to a no-income-tax state mid-year requires you to report income earned before and after the move to the correct state.
How no-income-tax states fund government services
States without income tax rely on other revenue sources. Sales tax is the most common: Texas, Washington, and Tennessee have among the highest combined state and local sales tax rates in the country, sometimes exceeding 8 or 9 percent. Alaska has no state sales tax but collects local sales taxes in some municipalities.
Property tax also funds schools and local services in these states. Florida and Texas, which have large populations and no income tax, collect significant property tax revenue. Some states, like Alaska and Wyoming, also tax oil, gas, or mineral extraction heavily.
The total tax burden — income tax plus sales tax plus property tax — varies widely. A person with high income and low spending might pay less total tax in a no-income-tax state. Someone who owns property or spends heavily on taxable goods might pay more. There is no universal answer about whether living in a no-income-tax state saves you money overall.
What happens if you move to a no-income-tax state mid-year
If you move from an income-tax state to a no-income-tax state during the year, you report income to each state for the period you lived there. Your home state taxes income earned while you were a resident; the no-income-tax state does not tax your income at all.
You will need to file a part-year resident return in your former state. This return covers only the months you lived there. Your new state does not require an income tax return because it collects no income tax. You still file a federal return for the full year.
The key is establishing your move date. Keep documentation: a lease or deed showing your move-in date, a utility bill, or a change-of-address notice. Your employer's payroll records will also show when your address changed in their system.
Working in a no-income-tax state while living elsewhere
If you live in a state that taxes income but work in a no-income-tax state, your home state usually taxes your wages anyway. The no-income-tax state does not collect tax on your income, but your state of residence does.
You report the full amount of income earned in the no-income-tax state on your home state's return. Some states offer a credit for taxes paid to other states, but since the no-income-tax state collects nothing, there is no credit to claim. You owe tax to your home state on the full amount.
The reverse is also true: if you live in a no-income-tax state and work in an income-tax state, that state may tax your wages. You would file a nonresident return in the state where you work and report the income earned there. Your home state does not tax it.
New Hampshire's partial income tax
New Hampshire taxes interest and dividend income at 5 percent but does not tax wages or salary. This makes it different from the other eight no-income-tax states. If you receive investment income from New Hampshire sources or live in New Hampshire and receive investment income from any source, you file a New Hampshire return.
Wage income is not taxed, so if you work in New Hampshire, you do not owe state income tax on your salary. If you move to New Hampshire and have investment accounts, you will need to file a return reporting that income. The tax applies to interest, dividends, and capital gains.
Nonresident income and tax filing
A nonresident is someone who does not live in a state but earns income there. Most states tax nonresidents on income earned within the state. If you live in California but perform work in Nevada (a no-income-tax state), Nevada does not tax you, but California does.
You report the income on your home state's return. Nevada issues no tax bill because it collects no income tax. You do not file a Nevada return for wage income. If you earned self-employment income or had a business in Nevada, the rules may differ — some states tax nonresident business income differently than wages.
Federal taxes are separate from state taxes
Living in a no-income-tax state does not change your federal tax obligation. You still file a federal return (Form 1040) and pay federal income tax at the same rates as someone in an income-tax state. The federal government taxes all U.S. citizens and residents on worldwide income regardless of state of residence.
Your federal return is filed separately from any state return. If you live in a no-income-tax state, you file only a federal return. If you lived in multiple states during the year, you file a federal return plus part-year resident returns in each state that taxes income.
Frequently Asked Questions
Do I pay less in total taxes if I move to a no-income-tax state?
Not necessarily. While you avoid state income tax, you may pay higher sales tax, property tax, or both. The total tax burden depends on your income level, spending habits, and whether you own property. Someone with high income and low spending might save; someone who owns a home might pay more overall.
If I work remotely for a company in an income-tax state but live in a no-income-tax state, which state taxes me?
Your state of residence does not tax you because it collects no income tax. Your employer's state may or may not tax you depending on that state's rules for remote workers. Many states have moved away from taxing remote workers who do not physically work there, but rules vary. Check with your employer or the state's tax authority.
Does New Hampshire tax all investment income?
New Hampshire taxes interest and dividend income but not capital gains from the sale of stocks or property. The tax rate is 5 percent on interest and dividends. Wage income is not taxed at all.
What if I moved mid-year and my employer withheld taxes for the wrong state?
You correct this when you file your return. If your employer withheld taxes for your old state after you moved, you report the overpayment on your part-year resident return and receive a refund. Keep your pay stubs showing the dates and amounts withheld to match against your return.
Can I claim a credit on my federal return for state taxes I did not pay?
No. The federal tax credit for state taxes applies only to taxes you actually paid. If you lived in a no-income-tax state, you paid no state income tax, so there is no credit to claim on your federal return.