Nine states have no income tax at all
Nine U.S. states collect no income tax from residents: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes only dividend and interest income, not wages. The other eight tax neither wages nor investment income.
These states fund government services through other revenue sources: sales tax, property tax, excise taxes on fuel and alcohol, and business taxes. The absence of income tax does not mean these states are cheaper to live in overall. Some have higher sales taxes or property taxes that offset the income tax savings, depending on your spending and where you own property.
If you are considering a move to a no-income-tax state for tax reasons, the actual savings depend on your income level, what you spend, and whether you own real estate. A high earner in a state with 10 percent income tax saves more in absolute dollars than a low earner, but that person may pay more in sales or property tax instead.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax on wages or investment income.
- New Hampshire taxes dividends and interest but not wages, making it a partial no-income-tax state.
- States without income tax typically rely on sales tax, property tax, and business taxes to fund services.
- Moving to a no-income-tax state does not always lower your total tax burden if you have high spending or own property.
- Your tax savings depend on your income, what you spend, and whether you own a home in the new state.
How no-income-tax states fund government services
States without income tax must collect revenue another way. Most rely on a combination of sales tax, property tax, and excise taxes. For example, Washington and Nevada have no income tax but charge sales tax of 6.5 percent and 8.23 percent respectively. Tennessee has no income tax but charges 9.55 percent sales tax, one of the highest in the nation.
Property tax rates also vary widely among no-income-tax states. Texas has a relatively high property tax rate (around 1.8 percent of home value on average), while Florida's property tax is lower (around 0.83 percent). Alaska has no sales tax in most areas and low property taxes, but relies on oil revenue and business taxes instead.
Excise taxes — taxes on specific goods like gasoline, cigarettes, and alcohol — also fund state budgets. Wyoming, for instance, has no income tax and a 4 percent sales tax, but funds schools and infrastructure partly through mineral extraction taxes and fuel excise taxes.
Income tax rates in nearby states for comparison
If you live near a no-income-tax state, you may be comparing your current tax burden to what you would pay if you moved. Here are the income tax rates in states that border or are near no-income-tax states:
| State | Top Income Tax Rate | Notes |
|---|---|---|
| California (near Nevada) | 13.3% | Highest in the nation; includes net investment income tax |
| Colorado (near Wyoming) | 4.63% | Flat rate; relatively low |
| Georgia (near Florida) | 5.75% | Flat rate |
| Oregon (near Washington) | 9.9% | High rate; no sales tax |
| New York (near no-income-tax states) | 10.9% | High rate; includes city taxes in some areas |
What moving to a no-income-tax state actually costs
The tax savings from moving to a no-income-tax state can be offset by higher costs elsewhere. A person earning $100,000 per year in California (13.3 percent income tax) would save $13,300 annually by moving to Nevada and earning the same salary. However, if that person buys a home in Nevada, they will pay property tax; if they spend heavily on goods, they will pay 8.23 percent sales tax on most purchases.
Someone who rents and spends little on taxable goods may see real savings. Someone who owns property or spends heavily on retail purchases may find the savings smaller or nonexistent. The math changes again if you have investment income, retirement income, or a business — different states tax these differently.
Cost of living in no-income-tax states also varies. Housing in Florida and Texas is often cheaper than in California or New York, which amplifies the tax advantage. Housing in parts of Alaska and Washington can be expensive, which reduces it. Moving for tax reasons alone, without considering housing costs and job availability, often results in disappointment.
How residency and state tax work when you move
You become a resident of a state for tax purposes based on where you spend most of your time and where you have established a permanent home. Most states consider you a resident if you live there for more than half the year. Some states have specific rules: Florida and Texas, for example, consider you a resident if you have a permanent home there, even if you spend part of the year elsewhere.
If you move mid-year, you may owe income tax to both your old state and your new state for the portion of the year you lived in each. Some states have reciprocal agreements that prevent double taxation; others do not. You will need to file a part-year resident return in both states and may receive a credit for taxes paid to the other state.
Remote workers should be careful: some states tax income earned by residents even if the work is performed elsewhere. If you move to a no-income-tax state but work remotely for a company in a high-tax state, you typically owe tax only to your state of residence, not to the state where your employer is located. However, this rule has exceptions, and some states are stricter than others.
Retirement income and investment income in no-income-tax states
One reason retirees move to no-income-tax states is to avoid taxes on Social Security, pensions, and investment income. Most no-income-tax states do not tax Social Security benefits. However, the rules for pensions and retirement account withdrawals vary.
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming tax neither pensions nor retirement account withdrawals (401k, IRA, etc.). New Hampshire taxes neither Social Security nor pensions, but does tax dividends and interest income. This makes New Hampshire less attractive for retirees with significant investment income.
If you have a large portfolio generating dividends and interest, moving to a no-income-tax state can save thousands per year. If your retirement income comes mostly from Social Security and a pension, the savings may be smaller, because many states do not tax these anyway. Compare your specific income sources to the tax rules in the state you are considering.
Frequently Asked Questions
Does moving to a no-income-tax state save money if I rent?
It depends on your income and spending. If you earn a high salary and spend little on taxable goods, you will likely save money. If you earn a low salary or spend heavily on retail purchases, the savings from avoiding income tax may be offset by higher sales tax. Calculate your current total tax burden (income plus sales plus property) and compare it to the no-income-tax state's sales and property taxes.
Can I claim residency in a no-income-tax state if I only own property there?
Owning property alone does not make you a resident for tax purposes. You must spend more than half the year there or establish it as your permanent home. Some states like Florida and Texas consider a permanent home sufficient; others require you to spend significant time there. Check the specific state's residency rules before buying property for tax reasons.
If I work remotely for a company in California but live in Texas, do I owe California income tax?
No. You owe income tax to your state of residence (Texas), not to the state where your employer is located. This applies even if your employer is in California. However, if you are a California resident who works remotely for a Texas company, you still owe California tax on your income.
Does New Hampshire's lack of income tax on wages make it as good as other no-income-tax states?
For wage earners, yes — New Hampshire does not tax wages. For retirees or investors, no — New Hampshire taxes dividends and interest income, which other no-income-tax states do not. If your income comes from investments or a taxable brokerage account, New Hampshire is less advantageous than Alaska, Florida, or Texas.
What happens to my taxes if I move mid-year?
You will file a part-year resident return in both your old state and your new state, reporting income for the months you lived in each. You may owe tax to both states, though many states offer a credit for taxes paid to the other state to prevent double taxation. The exact rules vary by state, so contact both state tax agencies for guidance on your specific situation.