Nine states have no income tax on wages or salaries
Nine states do not tax wages, salaries, or other earned income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. If you live in one of these states, your paycheck is not subject to state income tax, though you will still owe federal income tax to the IRS.
New Hampshire is a partial exception — it taxes interest and dividend income but not wages. The other eight states tax neither wages nor investment income. This does not mean these states have no taxes at all; most fund government through sales tax, property tax, corporate tax, or some combination of those.
If you move to or from one of these states, your tax situation changes when ready. Your employer will adjust your withholding based on your new state of residence, so you should update your W-4 form with your HR department when you relocate.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries.
- New Hampshire taxes investment income (interest and dividends) but not wages, making it different from the other eight.
- States without income tax typically rely on sales tax, property tax, or corporate tax to fund government services.
- You still owe federal income tax to the IRS even if you live in a state with no income tax.
- When you move to a different state, notify your employer so they can adjust your tax withholding.
How no-income-tax states fund government services
States without income tax must raise revenue another way. Most rely heavily on sales tax — the tax you pay at the register when you buy goods. Some of these states have sales tax rates higher than the national average to make up for the lost income tax revenue.
Property tax is another major source. Homeowners in no-income-tax states often pay property tax to their county or municipality, and this tax can be substantial depending on your home's value and location. Renters do not pay property tax directly, but landlords factor it into rent.
Corporate income tax and business taxes also fund state budgets in these states. Additionally, some states tax specific industries or activities — for example, Alaska taxes oil production, and some states tax gambling or alcohol sales at higher rates than other states do.
The difference between state and federal income tax
Federal income tax is collected by the IRS and goes to the U.S. government, regardless of which state you live in. State income tax, when it exists, is collected by your state and funds state and local services like schools, roads, and police departments.
Your federal tax rate depends on your income level and filing status — not on where you live. Your state tax rate, if your state has one, also depends on income but varies by state. Living in a no-income-tax state means you skip the state portion entirely, but the federal portion is the same as it would be anywhere else.
On your pay stub, you will see federal tax withheld (labeled as "FIT" or "Federal Income Tax") and, if applicable, state tax withheld. In a no-income-tax state, the state withholding line will be zero or absent.
What happens if you move to a state with income tax
If you relocate from a no-income-tax state to one that does tax income, your take-home pay will decrease because your employer will begin withholding state income tax. The amount withheld depends on your income, filing status, and the tax rate in your new state.
You should update your W-4 form with your new employer or your current employer's HR department as soon as you move. This ensures your withholding is correct for your new state. If you do not update it, you may owe a large bill when you file your state return, or you may have overpaid and receive a refund.
Your first year in a new state can be complicated if you lived in two states during the same tax year. You may need to file a part-year resident return in your old state and a part-year resident return in your new state. Each state has different rules about when you are considered a resident for tax purposes, so check your new state's tax authority website for guidance.
What happens if you move from a state with income tax to a no-income-tax state
If you move from a state that taxes income to one that does not, your take-home pay will increase because you will no longer have state income tax withheld. Your employer will adjust your W-4 and stop withholding for your old state once you provide proof of your new address.
You will still owe federal income tax, so do not assume your entire tax burden has disappeared. However, the state portion of your tax liability ends on the date you establish residency in your new state.
Like a move in the opposite direction, moving mid-year may require you to file a part-year resident return in your old state. Your old state will want to tax you only for the months you lived there. Keep records of your move date and any documentation (lease, utility bill, driver's license) that shows when you left.
Remote work and state income tax
If you work remotely for a company based in a different state, the state that taxes your income is usually the state where you live, not where your employer is located. This means if you live in a no-income-tax state and work for a company in California, you do not owe California income tax on your wages.
However, some states have different rules. A few states tax residents on income earned anywhere, even if the work is done remotely for an out-of-state employer. Check your state's tax authority website or ask your HR department if you are unsure.
If you move during the year and your job is remote, your tax situation changes on the date you move. Notify your employer when ready so they can adjust your withholding for your new state of residence.
Retirement income and no-income-tax states
Many people move to no-income-tax states after retiring because they want to avoid state income tax on retirement income like Social Security, pensions, or withdrawals from retirement accounts. However, not all no-income-tax states treat retirement income the same way.
Tennessee and New Hampshire tax interest and dividend income but not wages, so retirees living on investment income may still owe state tax in those states. The other seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) do not tax any form of income, including retirement income.
If you are planning a move based on retirement income, research your specific situation with a tax professional or your new state's tax authority. The rules can be complex, especially if you receive income from multiple sources.
Frequently Asked Questions
Do I still pay federal income tax if I live in a no-income-tax state?
Yes. Federal income tax is separate from state income tax and is owed to the IRS regardless of which state you live in. Living in a no-income-tax state only exempts you from state income tax, not federal income tax.
Which no-income-tax state has the lowest overall tax burden?
That depends on your situation and spending habits. States without income tax often have higher sales tax or property tax to compensate. Compare the sales tax rate, property tax rate, and any other taxes in states you are considering to estimate your total tax burden.
Can I claim residency in a no-income-tax state if I work remotely?
Yes, if you actually live there. Your state of residence is where you maintain your primary home, not where your employer is located. However, some states have rules about what counts as establishing residency, so check your new state's requirements.
What if I lived in two states during the same tax year?
You may need to file a part-year resident return in each state. Each state taxes you only for the months you lived there. Keep documentation of your move date and provide it to both states' tax authorities when you file.
Does living in a no-income-tax state mean I pay less in taxes overall?
Not necessarily. While you avoid state income tax, you may pay more in sales tax or property tax. The total tax burden depends on your income, spending, and whether you own property. Calculate your estimated taxes in any state you are considering before you move.