Which states have no state income tax
Seven states collect no tax on wages, salaries, or investment income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Two others — New Hampshire and Washington — tax investment income but not wages. If you live or work in one of these nine states, you keep more of your paycheck than residents of states with income tax.
The absence of income tax does not mean these states collect no revenue. Most fund schools, roads, and services through sales tax, property tax, or both. Alaska and Wyoming also rely on oil and mineral revenue. Understanding how your state funds itself matters because it shapes what you actually pay in total tax — not just income tax.
Moving to a no-income-tax state can reduce your tax bill, but the decision involves more than just income tax rates. You need to weigh sales tax, property tax, and whether the move makes sense for your job and family.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax on wages or investment income.
- New Hampshire and Washington tax investment income but not wages, so they function as no-income-tax states for most workers.
- States without income tax typically use higher sales tax or property tax to fund schools and services, so your total tax burden depends on how much you spend and own.
- If you move to a no-income-tax state, you may still owe income tax to your previous state on income earned before you left, depending on that state's rules.
- Remote workers and retirees benefit most from no-income-tax states, but the advantage shrinks if you have significant investment income or own property.
How no-income-tax states fund schools and services
Without income tax, these states rely on other revenue sources. Sales tax is the most common replacement. Tennessee, Texas, and Washington have sales tax rates above 8 percent. Alaska and Oregon have no sales tax but use other taxes to compensate. Property tax varies widely — some no-income-tax states have low property tax (Nevada, Wyoming), while others are moderate to high (New Hampshire, Texas).
Alaska and Wyoming benefit from oil and mineral extraction taxes, which fund a significant share of state spending. This means residents in those states may pay less overall tax than residents elsewhere, even accounting for sales and property tax. Florida and Nevada have no sales tax on groceries in some cases and lower property tax rates, which can make them attractive for retirees on fixed incomes.
The trade-off is real: a high earner in Texas pays no income tax but may pay more in property tax than a similar earner in a high-income-tax state with lower property tax. A person who spends heavily pays more sales tax. You need to calculate your own situation, not assume a no-income-tax state is always cheaper.
The nine states with no or limited income tax
| State | Wages Taxed? | Investment Income Taxed? | Primary Revenue Source |
|---|---|---|---|
| Alaska | No | No | Oil revenue, sales tax |
| Florida | No | No | Sales tax, property tax |
| Nevada | No | No | Sales tax, gaming taxes |
| New Hampshire | No | Yes (5%) | Sales tax, property tax |
| South Dakota | No | No | Sales tax, property tax |
| Tennessee | No | No | Sales tax (9.55%), property tax |
| Texas | No | No | Sales tax, property tax |
| Washington | No | Yes (7%) | Sales tax (10.25%), property tax |
| Wyoming | No | No | Mineral taxes, sales tax |
When moving to a no-income-tax state actually saves you money
The tax savings depend on your income source and spending habits. A W-2 employee earning $80,000 in California (13.3% top rate) saves roughly $10,600 per year by moving to Texas, assuming no other tax changes. A retiree living on Social Security and a small pension saves even more because Social Security is not taxed in any state, and many no-income-tax states do not tax pension income either.
Remote workers benefit most. If you work for a company in a high-tax state but live in a no-income-tax state, you typically owe tax only to your state of residence, not your employer's state. This is a significant advantage for tech workers, consultants, and others with location flexibility.
The savings shrink if you have substantial investment income. New Hampshire and Washington tax capital gains and dividends, so investors do not get the full benefit. Even in the seven states with no investment tax, you still owe federal capital gains tax. And if you own real estate or spend heavily on retail, sales and property tax can offset income tax savings.
Tax obligations when you move from a high-tax state
Moving to a no-income-tax state does not erase tax bills from your old state. Most states tax income earned within their borders during the tax year you lived there. If you moved from California to Texas on June 15, you owe California income tax on income earned January 1 through June 14. You file a part-year resident return in California and a resident return in Texas.
Some states are more aggressive. California, New York, and a few others have audited people who moved away, claiming they did not truly change residence. To protect yourself, document the move: update your driver's license, voter registration, and mailing address; establish residency with a lease or deed; and update your employer's payroll records. Keep records of where you lived each day of the tax year.
If you own a home in your old state, you may owe property tax there even after you move. Selling the home or renting it out has different tax consequences. Consult a tax professional in both states before you move if you own real estate or have complex income sources.
State income tax rates for comparison
To understand the value of no state income tax, compare it to neighboring states. Texas residents pay zero state income tax; California residents pay up to 13.3 percent. A $100,000 earner saves $13,300 per year by moving from California to Texas, before accounting for sales and property tax differences. Florida residents pay zero; New York residents pay up to 10.9 percent. The gap is substantial for high earners.
For middle-income earners, the advantage is smaller but still real. A $50,000 earner in New York (6.85% rate) saves $3,425 per year by moving to Florida. Over a decade, that is $34,250 — enough to matter for retirement planning or saving for a home down payment.
However, if you move to a no-income-tax state with high sales tax, the gap narrows. Tennessee's 9.55 percent sales tax is among the highest in the nation. A person who spends $40,000 per year on taxable goods pays $3,820 in sales tax. Combined with property tax, the total state tax burden may be similar to a state with moderate income tax and lower sales tax.
Special tax situations in no-income-tax states
Retirees often benefit most. Social Security is not taxed by any state. Many no-income-tax states also do not tax retirement account withdrawals (IRAs, 401(k)s, pensions). Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming do not tax retirement income. This makes them popular destinations for people over 65. Alaska and Wyoming have additional benefits for seniors, including property tax exemptions or deferrals.
Business owners should consider pass-through entity taxes. Some no-income-tax states have introduced taxes on business profits that flow to owners' personal returns. Tennessee and Texas have business margin taxes or franchise taxes that may explore. These are not income taxes but can affect your overall tax bill. Research your specific business structure before moving.
Investors in New Hampshire and Washington should note that capital gains and dividends are taxed. In New Hampshire, the tax applies to interest and dividends at 5 percent. In Washington, capital gains on assets held less than one year are taxed at 7 percent. This reduces the advantage of these states for people with significant investment income.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
No. If you work remotely for a company in a high-tax state but live in a no-income-tax state, you typically owe tax only to your state of residence. However, your employer may require you to live in the state where the company is located. Check your employment agreement and ask your HR department before assuming you can work remotely from a no-income-tax state.
Will I owe my old state income tax after I move?
Yes, for income earned while you lived there. If you moved mid-year, you file a part-year resident return in your old state for income earned before you moved. Your old state may also audit you to verify you truly changed residence. Update your driver's license, voter registration, and address with your employer to document the move.
Which no-income-tax state has the lowest total tax burden?
It depends on your situation. Alaska and Wyoming have low sales tax and property tax, making them cheapest for high earners. Florida and Nevada are popular for retirees because they do not tax retirement income and have moderate property tax. Tennessee has high sales tax, which offsets the income tax savings for heavy spenders. Calculate your own situation based on income, spending, and property ownership.
Can I claim residency in a no-income-tax state if I only visit occasionally?
No. You must establish genuine residency — a primary home, driver's license, voter registration, and intent to stay. States audit people who claim residency while maintaining a home in a high-tax state. If you split time between states, you may be considered a resident of both, owing tax to each. Consult a tax professional if you maintain homes in multiple states.
Are there any downsides to living in a no-income-tax state?
Yes. Sales tax is often higher, property tax can be substantial, and services may be less funded than in high-income-tax states. Schools, roads, and public services sometimes reflect lower state revenue. Research the specific state and region before moving. For some people, the trade-off is worth it; for others, the lower services outweigh the tax savings.