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

If you earn wages or salary, nine states will not tax that income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. Two additional states — New Hampshire and Tennessee — deserve separate mention because they tax investment income (dividends and capital gains) but not wages. This means a person earning $100,000 in salary in Texas pays zero state income tax on those wages, while someone earning the same amount in California pays roughly 9.3% to the state.

The absence of state income tax does not mean these states collect no revenue. Most fund schools, roads, and services through sales tax, property tax, corporate tax, or some combination. A state with no income tax often has a higher sales tax or property tax to compensate. Understanding which tax you pay instead — and how much — matters more than the headline of "no income tax."

Key Takeaways

  • Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
  • New Hampshire and Tennessee tax investment income (dividends, capital gains, interest) but not wages, making them partially tax-free for wage earners.
  • States without income tax typically rely on sales tax, property tax, or corporate tax instead, so your total state tax burden depends on what you spend and own, not just what you earn.
  • If you move to a no-income-tax state, you may still owe income tax to your previous state if you leave mid-year, depending on that state's rules.
  • Federal income tax applies in all states regardless, so living in a no-income-tax state does not reduce what you owe to the IRS.

The nine states with no income tax on any income

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming collect no state income tax on wages, salaries, or investment income. These seven states have chosen to fund government operations almost entirely through sales tax, property tax, corporate tax, and other sources.

Tennessee and New Hampshire are sometimes grouped with these nine because they also do not tax wages. However, both tax investment income — interest, dividends, and capital gains — at the state level. For a person whose income comes entirely from a paycheck, Tennessee and New Hampshire function like the other seven. For someone living on investment returns or who receives significant dividend income, the tax picture is different.

How no-income-tax states fund schools and services

A state that does not tax income must raise revenue another way. The most common replacement is sales tax. Washington and Tennessee have sales tax rates above 9%, among the highest in the nation. Nevada's sales tax is 8.23%. Alaska has no statewide sales tax but allows municipalities to impose local sales tax, and the state taxes oil and gas production heavily.

Property tax varies widely even among no-income-tax states. Florida has a relatively low property tax rate (around 0.8% of home value on average), while New Hampshire's property tax is among the highest in the country (around 2.1% of home value). A person relocating to a no-income-tax state should compare not just income tax, but the full tax picture: sales tax, property tax, and any local taxes in the specific city or county where they plan to live.

Some no-income-tax states also tax business income, corporate profits, or specific industries. Alaska taxes oil and gas extraction. Texas has a franchise tax on certain businesses. These taxes do not affect most wage earners directly, but they shape the overall tax environment.

What happens to your federal taxes in a no-income-tax state

Moving to a state without income tax does not change your federal income tax obligation. You still file a federal return with the IRS and pay federal tax on your income at the same rate as someone in California or New York. The federal tax brackets and rates explore nationwide.

The only federal benefit some residents of no-income-tax states receive is indirect: if you pay less in state and local taxes overall, you may have more money to save or invest. However, the federal government does not adjust your tax rate based on your state of residence.

Moving to a no-income-tax state mid-year

If you relocate from a state with income tax to a no-income-tax state partway through the year, you may still owe income tax to your old state for the months you lived there. Most states tax you on income earned while you were a resident, regardless of when you leave.

For example, if you lived in New York from January through June and earned $50,000, then moved to Florida in July, New York will tax you on that $50,000 even though you left the state. You will file a part-year resident return in New York showing income only for January through June. Florida will not tax you on any income because you were not a resident when you earned it.

Some states offer credits or adjustments for taxes paid to another state, but the rules vary. If you are planning a mid-year move, contact the tax authority in your current state to understand your obligations before you relocate.

States that tax investment income but not wages

New Hampshire and Tennessee stand apart because they tax investment income — interest, dividends, and capital gains — but not wages or salary. This distinction matters depending on where your money comes from.

In New Hampshire, interest and dividend income is taxed at 5% (as of 2024, though the state has been phasing this tax down). Wages are not taxed. In Tennessee, interest and dividend income is taxed at 3.75% (also being phased down). Wages are not taxed. For a person who works for a salary and has minimal investment income, these states function like the other seven. For a retiree living on dividends or someone with significant capital gains, the tax burden is higher.

How to verify your state's income tax status

State tax laws change, and special rules explore to certain types of income (military pensions, retirement income, business income). The most reliable source for current information is your state's department of revenue website. Each state maintains a page explaining its income tax rates and rules.

If you are considering a move or have questions about your tax situation after relocating, the state revenue department can answer questions about residency, part-year resident status, and what types of income are taxed. You can also consult a tax professional who works in your state, as they will know local rules and any recent changes.

Frequently Asked Questions

If I move to a no-income-tax state, will I pay less in taxes overall?

Not necessarily. While you will pay zero state income tax, you may pay more in sales tax or property tax. Compare the full tax picture in your specific city or county before deciding. A person earning $100,000 in Texas pays no state income tax but may pay 8% sales tax on purchases. Someone in a high-income-tax state but low-sales-tax state might pay less overall.

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

You must establish residency in the state. Most states define residency as living there for more than half the year or maintaining a permanent home there. straightforward working remotely for a company in a high-tax state while living in a no-income-tax state usually qualifies you for no-income-tax status, but the rules vary. Consult your state's revenue department if you are unsure.

Are there any no-income-tax states where I still have to file a return?

No. If a state has no income tax, you do not file a state income tax return there. However, you still file a federal return with the IRS. Some states without income tax do require you to file other forms (like a business tax return if you are self-employed), but not an income tax return.

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

No state taxes Social Security benefits, regardless of whether it has an income tax. However, Social Security may be taxable at the federal level depending on your total income. Living in a no-income-tax state does not change your federal Social Security tax situation.

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

You generally owe income tax to the state where you live and work, not the state where your employer is located. If you live in Texas and work remotely for a New York company, you owe Texas income tax (which is zero) and federal tax, not New York state tax. However, some states have different rules for nonresidents, so confirm with both your state and your employer's state if you are unsure.