Nine states have no income tax at all
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages, salaries, or investment income. This means residents pay no state income tax on W-2 earnings, 1099 income, capital gains, or dividends — though they may still owe federal tax on all of it.
New Hampshire is a partial exception: it taxes interest and dividend income but not wages. The other eight tax nothing that resembles income.
Living in a no-income-tax state does not eliminate your tax bill. These states fund themselves through sales tax, property tax, corporate tax, or some combination. Your total state and local tax burden may be higher or lower than a high-income-tax state, depending on where you live within that state and what you spend.
Key Takeaways
- Nine states impose no income tax on wages, investment gains, or business income, though New Hampshire taxes investment income only.
- No-income-tax states typically rely on sales tax, property tax, or both, so your total state tax burden depends on your spending and property value, not just your income.
- Moving to a no-income-tax state for tax reasons makes sense only if you have substantial income and plan to stay long enough to offset moving costs.
- Your federal tax return is unchanged by living in a no-income-tax state; you still owe federal income tax on all income sources.
- Some no-income-tax states tax retirement income differently, so check the rules for pensions, Social Security, and 401(k) withdrawals before you move.
How no-income-tax states replace that revenue
States without income tax collect taxes in other ways. Texas, Washington, and Nevada rely heavily on sales tax, which is why you see 8% to 10% added at the register. Alaska has no sales tax statewide but allows local sales taxes and relies on oil revenue and corporate taxes. Florida and Tennessee use sales tax plus corporate tax. South Dakota and Wyoming use sales tax, property tax, and corporate tax.
The practical effect: if you earn $100,000 in Texas and spend $50,000 of it in-state, you pay sales tax on that $50,000 but no income tax on the full $100,000. If you earn the same amount in California and spend the same amount, you pay California income tax on the full $100,000 but a lower sales tax rate on your purchases.
Property tax varies widely even within no-income-tax states. New Jersey has no income tax in some analyses, but its property tax is among the highest in the nation. Wyoming and South Dakota have lower property taxes. Before moving, compare your expected property tax bill in the specific county where you plan to live.
Whether moving for tax savings actually works
Moving to a no-income-tax state saves money only if you have enough income that state income tax is your largest tax burden, and only if you stay long enough to recoup moving costs. A household earning $60,000 per year may save $2,000 to $4,000 annually by moving from California to Texas, but moving itself costs $5,000 to $15,000. You break even in two to five years.
The calculation changes if you are self-employed or have investment income. A business owner earning $200,000 per year in California pays roughly $13,000 in state income tax; the same person in Texas pays zero. That difference justifies moving costs in one year.
You must also establish domicile — legal residency — in the new state. This means more than buying a house. You need a driver's license, voter registration, and a mailing address in the new state. Some states, particularly California, will challenge your move if you keep a home there, spend significant time there, or maintain business ties. If the state wins the dispute, you owe back taxes plus penalties. Consult a tax professional before moving if you own property or operate a business in a high-tax state.
Retirement income treatment in no-income-tax states
Most no-income-tax states do not tax retirement income either, which is a major advantage for retirees. But the rules vary, and some states have exceptions.
Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not tax Social Security, pensions, 401(k) withdrawals, or IRA distributions. If you retire to one of these states, your retirement income is completely free from state tax.
Tennessee taxes neither wages nor retirement income, so it is equally favorable for retirees and workers.
New Hampshire taxes interest and dividends but not Social Security or pension income. If your retirement income comes from a pension or Social Security, you owe no state tax. If it comes from a brokerage account or bond interest, you do.
If you are planning to retire and considering a move, check the specific rules for the income sources you will have. A person living on Social Security and a pension can retire tax-free in any of these nine states. A person living on investment income should avoid New Hampshire and verify the rules in whichever state they choose.
How to establish residency for tax purposes
straightforward buying a house in a no-income-tax state does not make you a resident for tax purposes. You must take concrete steps to establish domicile:
- Obtain a driver's license in the new state within 30 to 60 days of moving.
- Register to vote in the new state.
- Change your mailing address with the IRS, your employer, banks, and insurance companies.
- Register your vehicles in the new state.
- Update your will and beneficiary designations to reflect the new state.
- Close or transfer accounts at financial institutions in your old state, or at least update your address.
Keep documentation of these changes. If your old state later claims you are still a resident, you will need proof that you moved. A utility bill, lease, or mortgage statement in the new state, combined with a driver's license and voter registration, is usually sufficient.
Federal tax consequences of living in a no-income-tax state
Your federal income tax is the same regardless of which state you live in. The IRS taxes all U.S. citizens on their worldwide income, and state tax status does not change that. If you earn $100,000, you owe federal income tax on $100,000 whether you live in Alaska or New York.
However, you may be able to deduct state and local taxes (SALT) on your federal return. The deduction is capped at $10,000 per year as of 2024. If you live in a no-income-tax state, your SALT deduction is limited to property tax and sales tax, which are usually much smaller than income tax. This means you may not reach the $10,000 cap and may not benefit from itemizing deductions at all.
Conversely, if you live in a high-income-tax state and itemize deductions, you lose the benefit of those deductions if you move to a no-income-tax state. This is a real cost of moving that many people overlook.
States with partial or conditional income taxes
A few states have income taxes but exempt certain types of income, which can create confusion:
New Hampshire taxes interest and dividends at 5% but not wages. If you work for an employer, you owe no state income tax. If you live on investment income, you do.
Tennessee eliminated its income tax entirely as of 2021. It previously taxed only interest and dividends, but that tax is now gone.
Some states offer tax breaks for specific retirement income. Illinois, Mississippi, and Pennsylvania do not tax pension income, though they do tax wages. These are not the same as having no income tax, but they can be valuable for retirees.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. If you work remotely for a company in a no-income-tax state but live in a high-income-tax state, you owe tax to your state of residence, not your employer's state. However, some states tax remote workers based on where the company is located, so check your state's rules. Moving is the only way to avoid your home state's income tax.
If I move to a no-income-tax state, do I owe back taxes to my old state?
No, as long as you establish residency in the new state and stop being a resident of the old one. Your old state can only tax income you earned while you were a resident. Once you move and establish domicile elsewhere, you owe nothing to your former state on future income. However, if your old state disputes your move, you may owe taxes plus penalties while the dispute is resolved.
Are property taxes higher in no-income-tax states?
It depends on the state and county. Wyoming and South Dakota have relatively low property taxes. New Jersey, which has no income tax, has very high property taxes. Compare the specific county where you plan to live, not just the state.
Can I claim a deduction for moving to a no-income-tax state?
Moving expenses are not deductible for most people as of 2024. They were deductible before 2018 if you moved for work, but that deduction expired. You can deduct moving costs only if you are an active-duty military member relocating due to military orders.
What happens if I own property in two states?
You are a resident of the state where you spend the most time and have the strongest ties. If you own a home in California and a vacation home in Texas, and you spend eight months in California, California will likely claim you as a resident and tax your income. Owning property alone does not determine residency, but it is one factor. Consult a tax professional if you own property in multiple states.