Nine states do not tax wage income, and two more tax only investment income
If you live in or move to Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, or New Hampshire, your state will not tax your wages, salary, or self-employment income. New Hampshire and Tennessee tax only dividends and interest, not wages. This does not mean you pay no state tax at all — most of these states use sales tax, property tax, or other revenue sources instead — but it does change how you file and what you owe.
The practical difference depends on your income type and where you work. If you earn wages in one of the nine no-income-tax states, you will not file a state income tax return there. If you earn investment income in New Hampshire or Tennessee, you will file a return for that income only. If you live in a no-income-tax state but work in a state that does tax income, you may owe tax to the state where you work, not where you live.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
- New Hampshire and Tennessee tax investment income (dividends and interest) but not wages, so you file a return only if you have investment income.
- If you work in a state with income tax but live in a no-income-tax state, you typically owe tax to the state where you work, not your home state.
- No state income tax does not mean no state taxes — most of these states rely on sales tax, property tax, or other fees to fund services.
- Moving to a no-income-tax state for tax reasons alone usually saves money only if you have high wage or investment income.
The nine states with no income tax on wages
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages, salaries, or self-employment income. This list has not changed since 2009. Each state funds schools, roads, and services through other revenue sources: sales tax, property tax, fuel tax, corporate tax, or some combination.
The tax burden in these states is not lower overall — it is shifted. Florida and Washington have high sales taxes (6% and 6.5% respectively, before local additions). Alaska has no sales tax but charges property tax and fuel tax. Tennessee and New Hampshire have low sales taxes but higher property taxes in many counties. If you spend most of your income on goods and services, you may pay as much or more in sales tax than you would have paid in state income tax elsewhere.
New Hampshire and Tennessee: investment income only
New Hampshire and Tennessee stand apart because they tax investment income but not wages. In New Hampshire, the tax applies to dividends and interest income only — not capital gains, not retirement account distributions, and not wages. In Tennessee, the tax applies to dividends and interest as well, with the same exclusions.
If you live in New Hampshire or Tennessee and earn only wages, you file no state income tax return. If you earn dividends or interest, you file a return for that income. The rate in New Hampshire is 5% on dividends and interest. Tennessee's rate is also 5%. Both states phase out the tax for lower-income residents, so you may owe nothing even if you have investment income, depending on your total income and filing status.
How state income tax works when you cross state lines
If you live in a no-income-tax state but work in a state with income tax, you owe tax to the state where you work, not your home state. This is called the source income rule. Your employer in the income-tax state will withhold state tax from your paycheck, and you will file a return in that state at tax time.
The reverse is also true: if you live in an income-tax state and work in a no-income-tax state, you typically owe tax to your home state, not your workplace state. Some states offer a credit for taxes paid to another state, so you do not pay twice. A few states — including Virginia, Maryland, and Washington, D.C. — have reciprocal agreements that exempt workers in certain nearby counties from state tax if they live across the border.
Remote work complicates this. If you live in a no-income-tax state and work remotely for a company in an income-tax state, most states will not tax your income — you owe tax where you live. However, some states (notably New York) have tried to tax remote workers based on where the employer is located. The rules are still unsettled, and a tax professional can advise you based on your specific situation and state.
Sales tax, property tax, and other revenue sources in no-income-tax states
States without income tax replace that revenue with other taxes. The most common are sales tax and property tax. Florida has a 6% state sales tax plus local additions, which can reach 7.5% or higher depending on the county. Washington has a 6.5% state sales tax plus local options. Tennessee has a 9.55% combined state and local sales tax, one of the highest in the nation.
Property tax varies widely within these states. New Hampshire has no sales tax but relies heavily on property tax, with rates among the highest in the country. Alaska has no sales tax in most areas and low property taxes in some regions, but charges fuel tax and other fees. Texas has no income tax and no state sales tax, but property taxes are substantial. Nevada has no income tax and moderate sales tax, with property tax rates lower than many other states.
If you are considering a move for tax reasons, compare your total tax burden — income tax, sales tax, and property tax combined — in your current state and the state you are considering. A move to a no-income-tax state saves money only if your new total tax burden is lower, which depends on your income level, spending habits, and property value.
Retirement income and pensions in no-income-tax states
Most no-income-tax states do not tax retirement income either, which makes them attractive to retirees. Social Security is not taxed in any state. Distributions from traditional IRAs and 401(k)s are not taxed in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming. Tennessee and New Hampshire do not tax retirement distributions, though New Hampshire taxes investment income from other sources.
Pensions are treated differently. Some no-income-tax states exempt all pension income, while others exempt only military pensions or pensions from state and local government employees. Tennessee exempts all retirement income, including pensions. Florida exempts all retirement income. Texas, Washington, and Nevada also exempt all retirement income. If you receive a pension and are considering a move, verify the rules in your target state, as they vary.
Federal taxes are the same everywhere
State income tax is separate from federal income tax. No matter where you live, you file a federal return and pay federal tax on your income. The nine no-income-tax states and the two investment-income-only states do not change your federal tax burden. Your federal return is the same whether you live in Florida or New York.
Some people confuse state and federal tax and assume that moving to a no-income-tax state means paying no income tax at all. That is not true. You will still owe federal tax. The only difference is that you will not owe state income tax on top of it.
When a move to a no-income-tax state makes financial sense
A move to a no-income-tax state saves money if your new total tax burden (state, local, and property tax combined) is lower than your current burden. This is most likely if you have high wage income, live in a state with high income tax rates, and plan to rent rather than buy property.
A move is less likely to save money if you own property, because property taxes in no-income-tax states are often high. It is also less likely to save money if you have low income, because sales tax and property tax hit lower-income households harder than income tax does. If you are retired and live on Social Security and pensions, the savings may be modest, since most no-income-tax states do not tax retirement income anyway.
Before you move, calculate your total tax bill in both states. Include federal tax, state income tax, local income tax (if any), sales tax on your typical spending, and property tax on a home at the price you expect to pay. A tax professional can help with this calculation and can also advise on the timing of a move, whether you need to file in both states in the year you move, and how to handle retirement accounts and other assets.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
No. You must actually live in the state to benefit from its tax rules. The IRS and state tax agencies determine your state of residence based on where you spend the most time and where your permanent home is. You cannot claim residency in a no-income-tax state if you do not live there. Moving for tax reasons requires a genuine relocation.
If I work remotely for a company in New York but live in Florida, do I owe New York state tax?
Probably not. Most states tax income based on where you live, not where your employer is located. You would owe Florida tax (which is zero) and federal tax, but not New York state tax. However, New York has been aggressive about taxing remote workers, so confirm the current rule with a tax professional if your employer is in New York.
Are there any downsides to living in a no-income-tax state?
The main downside is that sales tax and property tax are often higher to make up for lost income tax revenue. If you own property or spend a lot on goods and services, your total tax bill may not be lower. Additionally, some no-income-tax states have lower funding for schools and public services, though this varies by state and region.
Does New Hampshire really not tax wages?
Correct. New Hampshire has no tax on wages, salaries, or self-employment income. It does tax dividends and interest at 5%, but only if your income exceeds a threshold that depends on your filing status. Most wage earners in New Hampshire file no state income tax return.
If I move mid-year, do I file in both states?
Yes, typically. If you move from one state to another during the tax year, you usually file a part-year return in both states. Each state taxes only the income you earned while living there. Your employer will withhold based on your state of residence at the time you earn the income, so the withholding should be correct, but you will file two returns to report the split income.