Which seven states have no state income tax
Seven states collect no income tax on wages, salaries, or investment gains: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. These states do not tax the money you earn from a job or the profit you make when you sell stocks or bonds. Two other states — New Hampshire and Tennessee — tax only investment income, not wages, which makes nine states total with some form of no-income-tax status.
The list has remained stable for decades. No state has added an income tax in recent years, and no state on this list has removed one. However, the way these states define "income" varies slightly. Tennessee, for example, taxes dividends and interest but not wages. New Hampshire taxes interest and dividends but not wages. The other seven tax neither wages nor investment income.
Moving to a no-income-tax state can reduce your annual tax burden, but the savings depend on your income level and the other taxes the state charges. A state with no income tax may have higher property taxes, sales taxes, or both to fund schools, roads, and services.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming charge no state income tax on wages or investment income.
- New Hampshire and Tennessee tax investment income but not wages, creating a partial no-income-tax status.
- States without income tax typically fund government through higher sales taxes, property taxes, or both.
- The tax savings from moving to a no-income-tax state depends on your total income and how much you spend on taxable purchases and property.
How states without income tax fund government services
States that do not collect income tax must raise money another way. Most rely heavily on sales tax, which is added to purchases at the register. Sales tax rates in no-income-tax states range from 4% to 7.25%, depending on the state and sometimes the county or city. Tennessee has the highest combined state and local sales tax rate at around 9.5%, while Alaska has no statewide sales tax but allows cities and boroughs to set their own.
Property tax is the second major funding source. Homeowners and landlords pay annual property tax based on the assessed value of real estate. Property tax rates vary widely even within no-income-tax states. Texas has relatively low property taxes compared to other states, while New Jersey — which does have income tax — has much higher property taxes. The relationship between income tax and property tax is not straightforward: some high-income-tax states have low property taxes, and vice versa.
No-income-tax states also fund government through excise taxes on specific goods like gasoline, cigarettes, and alcohol. Some states charge higher fees for vehicle registration, business licenses, and professional permits. A few states, including Alaska, have oil revenue that funds state operations and, in Alaska's case, pays residents an annual dividend from the Alaska Permanent Fund.
Comparing total tax burden across no-income-tax states
The absence of income tax does not automatically mean lower total taxes. A person earning $75,000 per year will pay different amounts depending on where they live, how much they spend, and whether they own property.
| State | State Income Tax | State Sales Tax | Property Tax (typical) |
|---|---|---|---|
| Alaska | None | None (local varies) | Low to moderate |
| Florida | None | 6% | Low to moderate |
| Nevada | None | 6.85% | Low to moderate |
| South Dakota | None | 4.5% | Low to moderate |
| Tennessee | None (wages only) | 9.55% (highest) | Low |
| Texas | None | 6.25% | Moderate to high |
| Wyoming | None | 4% | Low to moderate |
A retiree living on investment income might benefit most from Alaska, Florida, Nevada, South Dakota, Texas, or Wyoming, since these states tax neither wages nor investment gains. A working person earning a salary will see the biggest savings in states with low sales tax and property tax combined, such as Wyoming or South Dakota. Someone who spends heavily on taxable goods — groceries are often exempt, but restaurant meals and clothing are not — will feel a higher sales tax burden in Tennessee or Florida.
How no-income-tax status affects retirement planning
Retirees often consider moving to a no-income-tax state because they live on pensions, Social Security, and investment withdrawals rather than wages. Social Security is not taxed by any state, so that income is safe everywhere. However, the tax treatment of pensions and retirement account withdrawals varies by state.
Most no-income-tax states do not tax pension income either, which makes them attractive to military retirees and public employees. However, some states exempt only certain types of pensions. Tennessee, for example, does not tax military pensions but does tax some other retirement income. Before moving, a retiree should confirm how their specific income sources — pension, IRA withdrawals, 401(k) distributions, rental income — will be taxed in the new state.
A retiree also needs to consider property tax and sales tax in combination. A state with no income tax but high property tax may not save money for someone who owns a home. Conversely, a state with moderate property tax and low sales tax may offer real savings for someone who spends little on taxable goods.
State-by-state details on what is and is not taxed
Alaska taxes neither wages nor investment income. It has no statewide sales tax, though cities and boroughs can impose local sales tax. Property tax is low to moderate. The state funds operations partly through oil revenue and distributes a portion to residents via the Alaska Permanent Fund Dividend, paid annually.
Florida taxes neither wages nor investment income. Sales tax is 6% statewide, with some counties adding local tax. Property tax is relatively low. There is no tax on retirement income, pensions, or Social Security.
Nevada taxes neither wages nor investment income. Sales tax is 6.85% statewide. Property tax is low to moderate. Retirees benefit from no tax on pensions or investment withdrawals.
South Dakota taxes neither wages nor investment income. Sales tax is 4.5%, the lowest among no-income-tax states. Property tax is low to moderate. Retirees pay no tax on pensions or retirement account withdrawals.
Tennessee taxes investment income (dividends and interest) but not wages. Sales tax is 9.55% combined state and local, the highest in the nation. Property tax is low. Military pensions are exempt, but other pensions may be taxed depending on the source.
Texas taxes neither wages nor investment income. Sales tax is 6.25% statewide. Property tax is moderate to high compared to other states. Retirees pay no tax on pensions or investment income.
Wyoming taxes neither wages nor investment income. Sales tax is 4%, among the lowest. Property tax is low to moderate. Retirees benefit from no tax on any form of income.
What happens to your federal taxes if you move to a no-income-tax state
Moving to a state with no income tax does not change your federal income tax. You still file a federal return and pay federal tax on wages, investment gains, and other taxable income at the same rates as someone living in a high-income-tax state. The federal government taxes income regardless of where you live.
However, you may be able to deduct state and local taxes (called SALT) on your federal return, up to $10,000 per year. If you move to a no-income-tax state, you lose the deduction for state income tax but may still deduct property tax and sales tax up to the $10,000 limit. For most people, this makes little difference because the $10,000 cap is low relative to total taxes paid.
Frequently Asked Questions
Do I have to move to a no-income-tax state to benefit from no income tax?
No. You must establish residency in the state, which typically means living there for at least 183 days per year and registering to vote, obtaining a driver's license, or both. Some states have specific residency tests. If you spend only part of the year in a no-income-tax state, you may still owe income tax to your home state on income earned while you were there.
If I work remotely for a company in a high-income-tax state, do I owe that state income tax?
Generally, no. You owe income tax to the state where you live and work, not the state where your employer is located. However, some states have special rules for remote workers or nonresidents. Confirm the rules with both your home state and the state where your employer is based before moving.
Are there any downsides to living in a no-income-tax state?
The main trade-off is higher sales tax or property tax. Some no-income-tax states also have lower funding for schools and public services, though this varies by state and county. Research the specific state and county where you plan to move, since local property tax and school funding differ widely even within the same state.
Can I claim residency in a no-income-tax state if I own property there but live elsewhere most of the year?
Owning property does not establish residency for tax purposes. You must live in the state for a significant portion of the year and meet other residency tests like voter registration or a driver's license. If you own property in a no-income-tax state but live elsewhere, you will owe income tax to your actual home state.