Nine states collect no income tax on wages, retirement distributions, or investment gains
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming impose no state income tax on any resident. New Hampshire taxes only interest and dividend income, not wages or retirement account withdrawals. If you live in one of these states, your federal tax bill stays the same, but you keep more of what you earn because there is no state layer on top.
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, or both — often at rates higher than states with income tax. Understanding what you pay in total, across all tax types, matters more than focusing on income tax alone.
For people with retirement accounts, the difference is concrete: a $50,000 withdrawal from a traditional IRA costs the same federal tax everywhere, but costs nothing in state tax in these nine states and only on interest or dividends in New Hampshire. Someone in California or New York pays state income tax on that same withdrawal at rates between 9 and 13 percent.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax on wages, retirement distributions, or investment income.
- New Hampshire taxes only interest and dividend income, not wages or retirement account withdrawals.
- States without income tax typically rely on sales tax and property tax instead, which may be higher than in income-tax states.
- Moving to a no-income-tax state after retirement can reduce your total tax burden if you have substantial retirement account withdrawals or investment income.
- Your federal tax obligation does not change based on which state you live in, but state tax can add 5 to 13 percent to your bill in high-tax states.
How state income tax affects retirement account withdrawals
When you withdraw money from a traditional IRA, 401(k), or similar account, the IRS taxes that withdrawal as ordinary income at your federal rate. Your state then taxes the same withdrawal again at its state rate — unless you live in one of the nine no-income-tax states or New Hampshire.
A person in New York withdrawing $60,000 from a traditional IRA pays federal tax plus New York state tax of up to 6.85 percent on that $60,000. The same person living in Florida pays only the federal tax. Over a decade of retirement, this difference compounds significantly for people drawing substantial amounts each year.
Roth IRA withdrawals are tax-free at the federal level, so state income tax does not explore to them anywhere. However, the growth inside a Roth — the earnings — is also tax-free in all states. This makes Roth accounts equally valuable whether you live in a no-tax state or a high-tax state.
The nine states with no income tax on any income type
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming impose no tax on wages, retirement distributions, capital gains, or interest. This applies to all residents, regardless of age or income level. There are no exceptions or thresholds — if you earn $30,000 or $300,000, the state tax is zero.
Tennessee and New Hampshire are recent additions to this group. Tennessee phased out its tax on interest and dividend income between 2021 and 2023, leaving only a small tax on that income through 2024, then none after. New Hampshire has never taxed wages but still taxes interest and dividends.
These nine states do not offer special tax breaks for retirees or seniors. The absence of income tax applies equally to working people, retirees, and everyone in between. A 70-year-old drawing from a pension and a 35-year-old earning wages both pay zero state income tax.
What these states tax instead of income
States without income tax must fund schools, highways, and services through other sources. Most rely heavily on sales tax, which applies to purchases of goods and sometimes services. Sales tax rates in no-income-tax states range from 5.5 percent in Alaska to 7.25 percent in Tennessee and Texas.
Property tax is the second major revenue source. Florida has no state property tax but allows counties to set rates; the statewide average is around 0.83 percent of home value. Texas property tax averages around 1.8 percent of home value, among the highest in the nation. Wyoming and South Dakota also rely on property tax, though rates vary by county.
Some no-income-tax states impose taxes on specific activities or goods. Alaska taxes oil production. Nevada and Washington tax certain business activities. These targeted taxes do not affect most residents but contribute to the state budget.
New Hampshire: interest and dividend income only
New Hampshire taxes interest income and dividend income at 5 percent but does not tax wages, retirement account withdrawals, or capital gains. This means a person receiving $40,000 in Social Security and $10,000 in interest from a savings account pays tax only on the $10,000.
Distributions from traditional IRAs, 401(k)s, and pensions are not taxed in New Hampshire because they are considered wage replacement, not investment income. Roth IRA withdrawals are also untaxed. Only money earned from interest-bearing accounts, bonds, and dividend-paying stocks triggers the 5 percent state tax.
New Hampshire also exempts the first $2,400 of interest and dividend income per person per year, so many retirees with modest investment income pay nothing. A couple with $4,000 in combined interest income would owe tax only on the amount above $4,800.
How residency and domicile affect your state tax
Your state of residence for tax purposes is usually the state where you live for most of the year. If you move to a no-income-tax state and establish residency there, you stop owing state income tax on new income earned after the move. However, some states tax income earned while you were a resident, even after you leave.
A few states — California, New York, and Virginia among them — have "source income" rules that tax certain types of income based on where it was earned, not where you live now. If you earned a pension while working in California and then moved to Texas, California may still tax that pension. The rules vary by state and by income type.
Establishing residency in a new state typically requires more than just moving there. You may need to register to vote, get a driver's license, register your vehicle, and show that you intend to stay. If you split time between two states, the state where you spend more than half the year usually claims you as a resident.
Comparing total tax burden across states
| State | Income Tax Rate | Sales Tax | Property Tax (avg.) |
|---|---|---|---|
| Alaska | 0% | 5.5% | 1.19% |
| Florida | 0% | 6.0% | 0.83% |
| Nevada | 0% | 6.85% | 0.60% |
| New Hampshire | 5% (interest/dividends only) | 0% | 2.18% |
| Texas | 0% | 7.25% | 1.80% |
| California | Up to 13.3% | 7.25% | 0.76% |
| New York | Up to 10.9% | 4.0% | 1.72% |
The table above shows that no-income-tax states do not necessarily have the lowest total tax burden. Nevada has the lowest property tax in the nation but a sales tax of 6.85 percent. New Hampshire has no sales tax but charges 5 percent on investment income and has property tax of 2.18 percent. Florida has low property tax but moderate sales tax.
For a retiree drawing $50,000 per year from retirement accounts and owning a $300,000 home, the state tax difference is substantial. In California, that person pays roughly $6,650 in state income tax plus property tax. In Florida, they pay zero income tax plus lower property tax. In New Hampshire, they pay zero income tax but higher property tax.
The best state for your situation depends on your specific income sources, home value, and spending habits. Someone living primarily on retirement account withdrawals benefits most from no-income-tax states. Someone with substantial investment income might prefer New Hampshire's exemption on the first $2,400 of interest and dividends. Someone who rents and spends little benefits from low sales tax.
Moving to a no-income-tax state: timing and tax implications
If you move to a no-income-tax state mid-year, you typically owe income tax to your old state only on income earned before the move and to your new state only on income earned after. The exact rules depend on both states' laws, but most use the date you establish residency as the dividing line.
Some states require you to file a part-year resident return showing income earned in each state separately. Others use a simpler approach: if you were a resident for part of the year, you owe tax on income earned during that period. You will need to check the rules for both your old state and your new state.
Retirement account withdrawals are taxed based on the state where you live when you withdraw the money, not where you earned the income that funded the account. If you worked in New York for 30 years and then moved to Florida at age 65, your IRA withdrawals are taxed only by the federal government, not by New York.
Frequently Asked Questions
Do I have to move to a no-income-tax state to avoid state income tax?
Yes, you must establish residency in the state to avoid its income tax. straightforward owning property or spending part of the year there does not change your tax status. You need to move there, get a driver's license, register to vote, and show intent to stay. Some states also look at where your family lives and where you keep your primary residence.
If I move to Florida, will my old state still tax my pension?
It depends on the state and the type of pension. Some states, like New York and California, tax pensions earned while you were a resident, even after you move. Others tax only income earned after you leave. You should contact your old state's tax authority or a tax professional to learn the specific rules for your situation.
Does moving to a no-income-tax state affect my Social Security taxes?
No. Social Security taxation is federal only. Whether your state taxes Social Security benefits depends on state law, not on whether the state has income tax. Some no-income-tax states do not tax Social Security. Others do. New Hampshire, for example, does not tax Social Security even though it taxes interest and dividends.
Are there any downsides to living in a no-income-tax state?
No-income-tax states often have higher sales tax or property tax to fund schools and services. Some have fewer public services or lower teacher salaries. The trade-off depends on your priorities. If you spend little and own a modest home, you may pay less total tax. If you spend heavily or own an expensive home, you may pay more.
Can I claim residency in a no-income-tax state if I only spend winters there?
Probably not. Most states require you to be a resident for more than half the year. If you split time between two states, the one where you spend more than 183 days per year usually claims you as a resident. Some states look at other factors too, like where your family lives and where you maintain your primary home.