Nine states collect no income tax on wages or investment returns

Nine states do not tax wages, salaries, or investment income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. (New Hampshire taxes only dividend and interest income, so it functions as a no-income-tax state for most workers.) If you live or work in one of these states, you owe no state income tax on your earnings, though you still owe federal income tax.

This does not mean these states have no taxes at all. Most fund government through sales tax, property tax, excise taxes on fuel or alcohol, or corporate taxes. The trade-off varies by state: some have higher sales taxes to compensate, others rely more heavily on property tax or tourism revenue.

Whether living in a no-income-tax state saves you money depends on your total tax picture—your income level, where you own property, what you spend, and whether you have investment income. A high earner in Texas may pay less total tax than in California, but a retiree living on Social Security in Florida pays no state income tax regardless of income level.

Key Takeaways

  • Nine states impose no tax on wages or investment income, though New Hampshire taxes only dividends and interest.
  • No-income-tax states typically fund government through higher sales taxes, property taxes, or other levies, so your total state tax burden depends on how you spend and what you own.
  • Moving to a no-income-tax state can reduce your federal tax bill only if you also reduce your income or move your investments; the state tax savings are real, but federal tax does not change based on where you live.
  • Retirees drawing from IRAs, 401(k)s, or pensions may or may not owe state tax depending on the state and the income source—some no-income-tax states still tax retirement distributions.
  • If you work remotely for an out-of-state employer, your home state's tax rules explore to your wages, not your employer's state.

How no-income-tax states replace that revenue

Alaska has no state income tax and no sales tax, but funds government largely through oil revenue and corporate taxes. It also pays residents an annual dividend from the Alaska Permanent Fund, which is funded by oil investments.

Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all use sales tax as a primary revenue source. Sales tax rates in these states range from 4% to over 7% depending on the state and local jurisdiction. Washington and Tennessee also tax business income or corporate revenue in ways that indirectly affect consumers.

Property taxes vary widely. Texas has no state income tax but property tax rates are among the highest in the nation, averaging around 1.6% of home value annually. New Hampshire has no income tax but relies heavily on property tax, with rates averaging around 2.1% of home value. Florida's property tax is lower, around 0.8% on average.

The point: moving to a no-income-tax state does not eliminate taxes. It shifts the burden to consumption and property ownership. If you earn $100,000 in wages and spend most of it, a high-sales-tax state may cost you more than a state with income tax. If you earn $100,000 and own a $500,000 home, property tax becomes the larger factor.

Whether a no-income-tax state actually saves you money

The answer depends on your income, spending, and assets. Use this framework to estimate your own situation.

High earners with low spending: If you earn $150,000 or more and save most of it, moving to a no-income-tax state can save thousands per year. You avoid state income tax on your wages and investment gains, and if you own modest property, property tax is a smaller burden. This scenario favors states like Texas or Nevada.

High earners with high spending: If you earn $150,000 and spend $120,000 per year, sales tax becomes significant. In Washington (no income tax, 10.25% combined sales tax in some areas), you might pay $12,000 in sales tax annually. In a state like Oregon (9.9% income tax, no sales tax), you would pay roughly $15,000 in income tax. The no-income-tax state still wins, but the gap narrows.

Moderate earners: If you earn $60,000 to $80,000, the math depends heavily on property ownership and spending habits. A homeowner in Texas pays significant property tax. A renter in Florida with modest spending may come out ahead. Compare your actual property tax and estimated sales tax against your state income tax in your current state.

Retirees on fixed income: If you live on $40,000 per year from Social Security and a pension, state income tax may be zero or minimal in your current state anyway (Social Security is often not taxed; some pensions are exempt). Moving to a no-income-tax state saves you little unless you have substantial investment income. However, if you have a large IRA or 401(k) that you plan to draw from, a no-income-tax state can save you significantly over time.

Retirement account withdrawals in no-income-tax states

Most no-income-tax states do not tax traditional IRA or 401(k) withdrawals, which is a major advantage for retirees. However, the rules are not uniform.

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not tax IRA or 401(k) distributions. If you retire and move to one of these states, you can withdraw from your retirement accounts without owing state income tax.

Tennessee and New Hampshire have more complex rules. Tennessee does not tax IRA withdrawals but does tax some pension income. New Hampshire does not tax IRA withdrawals at all (it only taxes dividends and interest). Both states are generally favorable for retirees, but the details matter if you have a pension from a government employer.

If you are still working and contributing to a 401(k) or IRA, the state where you work determines whether your contributions are deductible for state tax purposes, not the state where you live. If you work in California (which has income tax) but live in Nevada, you still owe California state income tax on your wages, and your 401(k) contributions reduce your California taxable income, not Nevada's (Nevada has no income tax to reduce).

Remote work and state income tax

If you work remotely for an employer based in another state, your home state's tax rules explore to your wages. You do not owe income tax to your employer's state straightforward because the company is located there.

Example: You live in Florida (no income tax) and work remotely for a company in New York. You owe no Florida state income tax on your wages. You also do not owe New York state income tax because you do not work in New York. You owe only federal income tax.

The exception is if you work in a state that has a "convenience of the employer" rule or if you travel to the employer's office regularly. A few states (notably New York and Illinois) have tried to tax remote workers, but most have backed away from this approach. Check your specific state's rules if you work remotely for an out-of-state employer.

If you are self-employed and your clients are in another state, you generally owe self-employment tax (federal) plus income tax in your home state. You do not owe income tax in the client's state unless you have a physical presence there (an office, employees, or regular travel).

Moving to a no-income-tax state for tax reasons

If you are considering a move primarily to reduce taxes, establish residency carefully. Most states define residency based on where you spend the majority of your time, where you own a home, where you register your vehicle, and where you hold a driver's license. Changing your address on paper alone is not enough.

If you own a home in a high-income-tax state and buy a second home in a no-income-tax state, you may still be considered a resident of the first state for tax purposes if you spend more time there. States like California and New York actively audit people who claim to have moved, so the burden is on you to prove residency through consistent actions: registering your car, updating your driver's license, establishing bank accounts, and spending documented time in the new state.

The tax savings from moving must be weighed against the cost of moving itself, the loss of connections to your current community, and the possibility that your new state's other taxes (property, sales) offset the income tax savings. For most people, the decision to move should be based on lifestyle, job, or family reasons first, with tax savings as a secondary benefit.

How no-income-tax status affects your federal taxes

Living in a no-income-tax state does not change your federal income tax. You still file a federal return and owe federal tax on your income regardless of where you live. The state income tax you do not pay is not deductible on your federal return (the federal deduction for state and local taxes, or SALT, is capped at $10,000 per year, and most people do not itemize deductions anyway).

The only federal tax advantage of living in a no-income-tax state is indirect: if you save money on state taxes, you can invest that money and defer or reduce federal tax through retirement accounts. For example, if moving to Texas saves you $5,000 per year in state income tax, you could contribute that $5,000 to a traditional IRA or 401(k) and reduce your federal taxable income by $5,000. But the state itself does not reduce your federal bill.

Frequently Asked Questions

Do I have to move to a no-income-tax state to avoid state income tax?

Yes, you must establish residency in the state. straightforward working in a no-income-tax state does not exempt you from your home state's income tax. If you work in Nevada but live in California, you owe California income tax on your wages. You must move your primary residence, driver's license, and other indicators of residency to claim the tax benefit.

Will I owe state income tax on my Social Security if I move to a no-income-tax state?

No. Social Security is not taxed by any state, including no-income-tax states. The federal government may tax Social Security depending on your combined income, but state income tax does not explore to it anywhere.

What if I own property in a high-income-tax state but live in a no-income-tax state?

You do not owe income tax on the property itself in either state. However, if the property generates rental income, you owe income tax on that income in your home state (the no-income-tax state). You may also owe property tax in the state where the property is located, regardless of where you live.

Can I claim residency in a no-income-tax state if I only own a vacation home there?

No. Owning property alone does not establish residency. You must spend the majority of your time there, register your vehicle there, hold a driver's license there, and maintain other ties to the state. If you spend most of the year in a high-income-tax state, you are a resident of that state for tax purposes, even if you own a second home elsewhere.

Do no-income-tax states tax capital gains?

Most do not. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax capital gains. New Hampshire taxes only dividends and interest, not capital gains. This is one of the largest tax advantages for investors and retirees with substantial investment portfolios.