Which states don't tax income
Nine states collect no tax on wages, salaries, or investment income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception — it taxes investment income but not wages. These nine states fund government through sales tax, property tax, excise tax on specific goods, and business taxes instead.
The absence of state income tax does not mean these states have no taxes at all. Most charge higher sales tax to replace the revenue. Alaska has no state sales tax but collects oil revenue and allows local sales taxes. The trade-off varies by state: some residents pay more in sales and property tax than they would have paid in income tax, while others pay less overall.
If you are considering a move or comparing tax burden across states, understanding how each state funds itself matters more than the presence or absence of income tax alone. A state with no income tax but 10 percent sales tax may cost more than a state with 5 percent income tax and 6 percent sales tax, depending on your income level and spending patterns.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
- New Hampshire taxes investment income and capital gains but not wages or salaries.
- States without income tax fund government through sales tax, property tax, excise taxes, and business taxes instead.
- The total tax burden in a no-income-tax state can be higher or lower than in an income-tax state, depending on sales tax rates and your personal spending and income mix.
- Alaska is the only state with no state sales tax, though local jurisdictions may charge sales tax.
How no-income-tax states replace that revenue
States without income tax rely on sales tax as their primary replacement revenue source. Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming all use sales tax. The rates vary: Washington charges 6.5 percent state sales tax, while Tennessee charges 4 percent. Local jurisdictions add additional sales tax on top of the state rate, so the total at checkout depends on where you live within the state.
Property tax is the second major revenue source. Texas and Wyoming use property tax heavily. Alaska funds much of its government through oil and gas revenue rather than broad-based taxes, which is why it has neither state income tax nor state sales tax. South Dakota and Nevada also rely on property tax and business taxes.
Excise taxes — taxes on specific products like gasoline, alcohol, and tobacco — provide additional revenue in most of these states. Some states also tax business income, corporate profits, or gross receipts. The combination of these sources replaces the revenue that income tax would have generated.
State-by-state breakdown of tax structure
| State | Income Tax | State Sales Tax | Other Major Revenue Sources |
|---|---|---|---|
| Alaska | None | None (local only) | Oil and gas revenue, property tax |
| Florida | None | 6% | Property tax, sales tax, tourism taxes |
| Nevada | None | 6.85% | Property tax, business taxes, gaming taxes |
| South Dakota | None | 4.5% | Property tax, business taxes |
| Tennessee | None | 4% | Property tax, excise taxes, sales tax |
| Texas | None | 6.25% | Property tax, business taxes, excise taxes |
| Washington | None | 6.5% | Property tax, business taxes, excise taxes |
| Wyoming | None | 4% | Property tax, mineral extraction taxes, excise taxes |
| New Hampshire | None on wages; 5% on investment income | None | Property tax, excise taxes, business taxes |
Sales tax rates shown are state rates only and do not include local additions. Your actual sales tax at checkout will be higher in most locations. New Hampshire's lack of sales tax makes it unusual among no-income-tax states, but its tax on investment income and capital gains means high-income earners may still owe state tax.
How total tax burden compares across states
A state with no income tax does not automatically mean lower total taxes. Someone earning $75,000 per year and spending $50,000 might pay less in a no-income-tax state with 7 percent sales tax than in a state with 5 percent income tax. But someone earning $150,000 and spending $80,000 might pay more in sales tax than they would have paid in income tax.
Property tax also shifts the burden. Texas has no income tax but charges property tax that can reach 2 percent of home value annually in some counties. A homeowner in Texas might pay more total tax than a renter in a state with income tax. Renters in no-income-tax states often pay less overall because they avoid property tax, but they still pay sales tax on everything they buy.
Retirees on fixed income often benefit from no-income-tax states because their income is not taxed, but they still pay sales and property tax. Someone with significant investment income may owe more in a state like New Hampshire that taxes investment gains. The actual comparison requires looking at your specific income sources, spending level, and whether you own property.
New Hampshire's partial income tax
New Hampshire taxes investment income and capital gains at 5 percent but does not tax wages or salaries. This means someone earning $100,000 in salary pays no state income tax, but someone with $50,000 in dividend income or capital gains owes $2,500 in state tax.
New Hampshire also has no state sales tax, making it unusual. The state funds government primarily through property tax, business taxes, and the 5 percent tax on investment income. This structure benefits wage earners and people living on salary but taxes those with investment portfolios.
New Hampshire residents who work in the state but live elsewhere still owe the 5 percent tax on investment income if they are New Hampshire residents. The tax applies to interest, dividends, capital gains, and other investment returns.
How moving to a no-income-tax state affects your taxes
If you move to a no-income-tax state, you stop owing state income tax on wages once you establish residency. Residency rules vary by state but typically require you to live there for the full tax year and file a state tax return. Some states ask about your intent to stay, driver's license address, or where you spend most of your time.
You will still owe federal income tax regardless of which state you live in. Federal tax rates and brackets do not change based on state residency. The benefit of moving to a no-income-tax state is the elimination of state tax only.
If you have income from another state — such as a pension from a former employer in a different state, rental income from out-of-state property, or a business in another state — you may still owe tax to that state. Some states tax pension income from government or military service even if you no longer live there. Check the specific rules for your income sources before assuming you owe no state tax.
States that recently changed or considered changing income tax policy
Most no-income-tax states have maintained that policy for decades. However, some states have debated or made changes. Tennessee eliminated its tax on investment income in 2021, joining the nine states with no income tax. A few other states have proposed eliminating income tax but have not passed legislation.
No state has moved in the opposite direction — adding a new income tax where none existed — in recent decades. The political and practical barriers to implementing a new income tax are substantial, so the list of nine states (plus New Hampshire's partial exemption) has remained relatively stable.
If you are planning a move based on tax policy, check the current rules for the specific state and income type you have. Tax law changes, and what applies this year may not explore next year. The IRS website and your state's department of revenue provide the most current information.
Frequently Asked Questions
Do I owe federal income tax if I live in a state with no state income tax?
Yes. Federal income tax is separate from state income tax and applies to all U.S. residents regardless of which state they live in. Living in a no-income-tax state eliminates only state tax, not federal tax. You will still file a federal return and owe federal tax based on your income and filing status.
Which no-income-tax state has the lowest overall tax burden?
That depends on your income level, spending, and whether you own property. Alaska has the lowest sales tax (none at state level) but high property taxes in some areas. South Dakota has low sales tax at 4.5 percent. Wyoming has low sales tax and moderate property tax. Compare all three tax types for your specific situation rather than focusing on income tax alone.
If I move to a no-income-tax state mid-year, do I owe state tax for the whole year?
No. You owe state income tax only for the months you were a resident of that state. If you moved to Florida in July, you would owe income tax to your previous state for January through June and no tax to Florida for July through December. File a part-year resident return in both states to report this correctly.
Does New Hampshire tax retirement income?
New Hampshire does not tax wages or salaries, including retirement income from pensions or 401(k) withdrawals. However, it does tax investment income such as interest, dividends, and capital gains at 5 percent. A retiree living on pension income owes no New Hampshire state tax, but one living on investment returns owes 5 percent.
Can I reduce my taxes by moving to a no-income-tax state if I work remotely?
Yes, if you establish residency in the no-income-tax state. Most states tax income based on where you live, not where your employer is located. If you move to Texas and work remotely for a company in New York, you owe Texas tax (none) rather than New York tax. Establish residency by moving your home, driver's license, and voter registration to the new state.