Nine states collect no income tax on wages, and two more tax only investment income

No income tax means the state does not tax what you earn from a job, self-employment, or a pension. Nine states have this policy: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. Two others — New Hampshire and Tennessee — tax only investment income (dividends and capital gains), not wages.

This does not mean these states collect no tax at all. Most fund government through sales tax, property tax, or both — often at rates higher than states with income tax. The trade-off is real: you keep more of your paycheck, but you pay more when you spend or own property.

If you live in one of these states, your federal tax bill stays the same. State income tax and federal income tax are separate systems. Removing state income tax only changes what you owe your state, not the IRS.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire collect no tax on wages or salary.
  • New Hampshire and Tennessee tax investment income (dividends, capital gains, interest) but not wages, making them partial no-income-tax states.
  • States without income tax typically rely on sales tax and property tax instead, which can be higher than in income-tax states.
  • Moving to a no-income-tax state does not change your federal tax obligation, only what you owe your state.
  • Retirement income treatment varies by state — some exempt pensions and Social Security, others do not, even among no-income-tax states.

How no-income-tax states replace that revenue

A state budget still needs to fund schools, roads, courts, and police. States without income tax shift that burden to sales tax, property tax, or both. The result is often a higher total tax burden on residents, even though the paycheck feels larger.

Texas, for example, has no income tax but a sales tax of 6.25 percent at the state level (plus local additions that can reach 8.25 percent total). Washington has no income tax but a sales tax that reaches 10.25 percent in some counties. Florida has no income tax but a 6 percent state sales tax plus local options.

Property tax varies more widely. New Hampshire has no income tax but one of the highest property tax rates in the country — roughly 2.1 percent of home value annually. Texas property tax averages around 1.6 percent. Alaska has low property tax in most areas but high sales tax in some regions.

The practical effect: if you earn $60,000 a year in Texas, you avoid state income tax but pay more in sales tax on groceries, gas, and goods. If you own a home, you also pay property tax. Over a year, your total state and local tax burden may be similar to or higher than in a state with income tax.

Partial no-income-tax states: New Hampshire and Tennessee

New Hampshire and Tennessee occupy a middle ground. Both tax investment income — dividends, capital gains, and interest — but not wages or salary. This matters most if you have significant investment accounts, rental property, or retirement savings that generate taxable gains.

New Hampshire taxes interest and dividends at 5 percent. Tennessee taxes investment income at 3.85 percent. If you earn $50,000 in wages, neither state taxes it. If you also earn $10,000 in dividend income, Tennessee takes $385 and New Hampshire takes $500.

Both states still use sales tax and property tax to fund government. New Hampshire has high property tax (around 2.1 percent) and moderate sales tax (6 percent). Tennessee has moderate property tax (around 0.7 percent) and moderate sales tax (9.55 percent at the state level).

Retirement income and pensions in no-income-tax states

How a state treats retirement income varies, even among no-income-tax states. Some exempt pensions and Social Security entirely. Others tax them like any other income — which matters less if the state has no income tax, but matters more in partial no-income-tax states.

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not tax any income, so pensions and Social Security are untouched. Tennessee and New Hampshire do not tax wages, so pensions (which are deferred wages) are also untouched — but investment income from retirement accounts is taxed.

If you are planning to retire in a no-income-tax state, confirm the state's treatment of your specific income source. A pension from a former employer, a 401(k) withdrawal, and Social Security are all treated differently depending on the state. The IRS taxes all three at the federal level, but your state may or may not add its own tax.

How moving to a no-income-tax state affects your taxes

Your federal tax bill does not change when you move to a no-income-tax state. You still owe the IRS the same amount based on your income, filing status, and deductions. State income tax and federal income tax are separate calculations.

What changes is your state tax. If you move from California (which has a top state income tax rate of 13.3 percent) to Texas (no state income tax), you stop paying California tax and start paying Texas sales and property tax instead. The IRS still gets its share.

The timing matters for the year you move. If you move mid-year, you may owe tax to both your old state and your new state for the portion of the year you lived in each. Most states use the "resident for the full year" rule, so moving on January 15 means you owe tax to your old state for January 1–14 and your new state for January 15–December 31.

Why people move to no-income-tax states

The main draw is the paycheck. Earning $100,000 in Texas means you keep all $100,000 before federal tax, sales tax, and property tax. Earning $100,000 in California means you lose roughly $13,300 to state income tax before anything else.

Over a career, this adds up. A person earning $75,000 a year for 30 years in a high-income-tax state might pay $300,000 or more in state income tax alone. The same person in a no-income-tax state pays zero state income tax on wages, though they pay more in sales and property tax.

The second draw is simplicity. States without income tax do not require state income tax returns. You file federal taxes as usual, but you skip the state return entirely. This matters less if you use tax software, but it saves time and reduces the chance of a state audit.

Trade-offs and hidden costs of no-income-tax states

No income tax sounds like a win, but the full picture is more complex. Sales tax hits lower-income households harder because they spend a larger share of their income on taxable goods. A family earning $30,000 a year spends most of it on groceries, gas, and rent — all subject to sales tax. A family earning $300,000 a year spends a smaller share on these items and invests the rest, avoiding sales tax on that portion.

Property tax in some no-income-tax states is steep. If you plan to buy a home, research the property tax rate in your target area. A $400,000 home in New Hampshire costs roughly $8,400 per year in property tax. The same home in Texas costs roughly $6,400 per year. In Tennessee, it costs roughly $2,800 per year.

Some no-income-tax states also tax business income or have specific taxes on certain industries. Alaska has an oil production tax. Washington has a capital gains tax on long-term gains over $250,000. Tennessee taxes business income in some cases. Read the details for your specific state and situation.

Frequently Asked Questions

Do I have to file a state tax return in a no-income-tax state?

No. If you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming and earn only wages, you file no state return. If you live in New Hampshire or Tennessee and earn only wages, you also file no state return. If you have investment income in New Hampshire or Tennessee, you must file a state return to report it.

If I move to a no-income-tax state, do I owe tax to my old state?

You owe tax to your old state only for the months you lived there. If you move on June 15, you owe tax to your old state for January through June 15 and to your new state for June 16 through December 31. Both states will want a return showing when you moved. Keep proof of your move date — a lease, utility bill, or driver's license.

Are no-income-tax states cheaper to live in overall?

Not always. While you save on income tax, you may pay more in sales tax and property tax. Texas has no income tax but moderate property tax. New Hampshire has no income tax but very high property tax. Tennessee has no income tax and low property tax but high sales tax. Compare the total tax burden for your specific situation.

Does Social Security count as income in no-income-tax states?

No. Social Security is not taxed by any of the nine no-income-tax states. In New Hampshire and Tennessee, Social Security is also not taxed because it is not investment income. The federal government taxes Social Security for some retirees, but your state does not.

What if I work remotely for a company in a high-tax state but live in a no-income-tax state?

You owe tax to the state where you live, not where your employer is located. If you live in Florida and work remotely for a New York company, you owe Florida tax (which is zero) and federal tax, not New York tax. Your employer should withhold based on your home address. If they withhold for New York instead, you can claim a credit on your New York return or request a refund.