Nine states have no state income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire taxes only dividend and interest income, not wages, so for most workers it functions like a no-income-tax state. These nine states make up their revenue through sales tax, property tax, corporate tax, and other fees instead.
If you live in one of these states, you do not owe state income tax on your paycheck. You still owe federal income tax to the IRS. You may also owe local taxes depending on your city or county — some municipalities within no-income-tax states do impose local income taxes, though this is uncommon.
Moving to a no-income-tax state does not automatically reduce your total tax burden. A state with no income tax often has higher sales tax or property tax to compensate. Whether you pay less overall depends on your specific situation: how much you earn, what you spend, and whether you own property.
Key Takeaways
- Nine states collect no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
- No-income-tax states fund government through sales tax, property tax, and corporate tax, which are often higher than in states with income tax.
- You still owe federal income tax to the IRS even if you live in a no-income-tax state.
- Some cities and counties within no-income-tax states do impose local income taxes, so check your specific location before assuming you owe nothing.
How no-income-tax states replace that revenue
States without income tax rely on other sources to fund schools, roads, and public services. Sales tax is the most visible replacement: most no-income-tax states have sales tax rates between 5 and 7 percent, and some allow cities to add local sales tax on top. This means you pay tax on most purchases you make.
Property tax is another major revenue source. If you own a home or land in a no-income-tax state, you pay property tax based on the assessed value of your property. Rates vary widely by state and county. Some no-income-tax states have moderate property taxes; others are among the highest in the nation.
Corporate income tax, fuel taxes, gambling taxes (in Nevada), and various licensing and permit fees round out the funding. The mix differs by state. For example, Alaska has oil revenue that reduces the need for other taxes, while Texas relies heavily on sales and property tax.
Whether a no-income-tax state saves you money depends on your situation
A person who earns $60,000 a year and rents an apartment may pay less total tax in a no-income-tax state than in a high-income-tax state, because they avoid income tax and pay less property tax (landlords pay it, though it may be factored into rent). The same person who owns a $300,000 home might pay more total tax in a no-income-tax state because property taxes are steep.
Someone who spends most of their income on taxable goods and services will feel the sales tax burden more acutely. Someone who saves or invests most of their income may benefit more from avoiding income tax. A retiree living on investment income may face different tax consequences in New Hampshire (which taxes investment income) than in Alaska (which does not).
The only way to know whether moving to a no-income-tax state reduces your personal tax bill is to calculate your current total tax burden — income tax, sales tax, property tax, and any local taxes — and compare it to what you would owe in the state you are considering. A tax professional can do this calculation for you.
Federal income tax applies in every state
State income tax and federal income tax are separate. Even if you live in Alaska or Texas and owe zero state income tax, you still file a federal tax return with the IRS and pay federal income tax based on your income level. The IRS does not care which state you live in; federal tax rates and rules are the same everywhere.
When you receive a paycheck, your employer withholds federal income tax automatically. If you are self-employed, you pay federal income tax through quarterly estimated tax payments or when you file your annual return. This is true regardless of whether your state has income tax.
Local income taxes exist in some cities within no-income-tax states
Although the state does not tax income, some cities and counties in no-income-tax states do. This is rare but not unheard of. For example, some municipalities in Ohio (which does have state income tax) and a few in other states impose local income taxes on residents and sometimes on people who work there.
Before you assume you owe no income tax in a particular location, check with your city or county tax assessor's office or your employer's payroll department. They can tell you whether local income tax applies where you live or work. The rate is usually much lower than state income tax — often 1 to 2 percent — but it is not zero.
How to verify your state's tax status
Your state's department of revenue website lists current tax rates and rules. You can also ask your employer's payroll or human resources department what taxes are withheld from your paycheck; they will know whether state income tax applies to you. If you are self-employed or have investment income, a tax professional or the IRS website can clarify what you owe.
If you are moving to a new state, contact the new state's department of revenue before you relocate. They can tell you what taxes apply and what forms you need to file. Some states have reciprocal agreements with neighboring states, and some tax income earned in other states, so the rules can be complex if you work across state lines.
Frequently Asked Questions
Do I still have to file a tax return if I live in a no-income-tax state?
You must file a federal tax return with the IRS if your income exceeds the threshold for your filing status, regardless of which state you live in. You do not file a state income tax return in the nine no-income-tax states. However, you may need to file other state forms — for example, to report business income or claim a state tax credit.
Is New Hampshire really a no-income-tax state if it taxes investment income?
New Hampshire taxes dividends and interest at 5 percent but does not tax wages or salaries. For most workers, this means no state income tax on their paycheck. If you live on investment income, you will owe New Hampshire tax on it. It is often grouped with the nine true no-income-tax states because wage earners pay nothing.
Can I reduce my taxes by moving to a no-income-tax state?
Possibly, but not automatically. You must compare your total tax burden in both states — income tax, sales tax, property tax, and local taxes combined. A high-earning renter might save money; a homeowner might not. A tax professional can calculate the difference for your specific situation.
If I work in a no-income-tax state but live in one that has income tax, which state taxes my income?
Most states tax income earned within their borders, so your work state may tax your wages even if you live elsewhere. However, your home state may also tax you and offer a credit for taxes paid to the work state. The rules vary by state. Check with both states' revenue departments or a tax professional.
Does Social Security count as income for state tax purposes?
In most no-income-tax states, Social Security is not taxed. In states that do have income tax, some tax Social Security and some do not — the rules vary. If you receive Social Security, check your state's department of revenue website or ask a tax professional whether it is taxable in your state.